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What is net pay? How it works, how to calculate it and its difference from gross pay
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Date:2025-04-15 05:39:22
Tax season is here. With all the forms and applications you need to fill out, it's easy to get confused. But USA TODAY has got you covered with a series of stories and tips that will hopefully make filing a little less complicated.
No matter if it's your first time or you've been filing for years, you'll want to keep track of how much you've made throughout the tax year.
Here's what you should know about net pay, what it is, how to calculate it and the difference between gross pay vs. net pay.
What is net pay?
Net pay is the amount of money employees earn after payroll deductions are taken away from gross pay. These includes taxes, benefits, wage garnishments and other deductions.
In simple terms, net pay is the money you take home directly from your paycheck.
For example, if someone gets paid $1,200 per week but $160 is taken away by deductions, the person's net pay will be $1,040 per week.
What is gross pay?
Gross pay is an employee's total earned wages before payroll deductions.
What is net income?
Net income, also known as net earnings, is the total revenue of a company minus operating costs. This includes the cost of goods, taxes, interest, operating expenses, selling, general and administrative expenses and depreciation.
Net income is used as a measure of profitability.
For employees, what you need to know about net pay
Net pay is what you take home. Even if you have the same salary as someone, that doesn't mean you will have the same net pay. Net pay is affected by certain taxes, benefits, wage garnishments and other deductions.
Someone's net pay can be different than yours based on their marital status, filing status, tax credits, children and dependents, among other factors.
For employers, what you need to know about net pay
As for employers, there are certain things to consider when it comes to your employees net pay. For example, retirement plan contributions, benefits and employer FICA taxes are not included in someone's net pay and deducted before an employee receives it.
Additionally, net pay does not refer to the amount it costs to employ, rather it is the amount an employee takes home.
Keeping track of your employee's net pay and gross pay is also important for tracking payroll taxes. If there are any inconsistencies between the two, you may want to verify the information. If there are any issues, this could result in penalties.
More of your 2024 tax season questions answered
IRS announces new tax brackets for 2024.What does that mean for you?
We'll help you decide:Is it better to pay someone to do your taxes or do them yourself?
Mark your calendars:Tax deadlines to keep in mind with Tax Day coming up
Where's my refund?How to track your tax refund through the IRS system
When can you file taxes this year?Here's when the 2024 tax season opens.
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