Your Paycheck

Whether you’ve been on the job for twenty years and are about to receive another annual raise, or you’re embarking on your first day at a new company, learning the precise number of a new salary can be exciting. The number can evoke lofty plans to take a vacation, buy a new car, or take a bite out of credit card debt. But that salary number is not the whole story – it’s merely the beginning.

Your salary is your "gross" pay. From this starting point your company deducts money for several things, like federal and state income taxes, Social Security taxes, and employee benefits. Federal and state income taxes generally account for between 15 to 30 percent of gross pay, said Melissa Labant, tax manager at the American Institute of CPAs.

Once your company makes these deductions, what's left is your net pay, otherwise known as your take-home pay. It’s often quite a different number. You shouldn’t be surprised if your net pay is significantly less than your gross pay. Generally speaking take-home pay is about 60 to 70 percent of your gross pay, said Labant. Although it varies significantly state by state, taking into account costs such as medical insurance.

To find out what your net pay is, take a look at a recent pay stub. If you don’t have it handy, you could ask your employer for one, talk to an associate in your company’s HR department, or visit the web site Paycheck City to calculate the amount yourself. 

The important step is to understand that your net pay is what’s in your paycheck – the money you have to live on. Your net pay covers necessary expenses – food, housing and savings – as well as what you’ll have left over afterward for “discretionary” purchases like cable TV or a new electronic gadget. Your net pay is what you should keep in mind when you create a spending plan and budget yourself and your family appropriately.

To understand more about these deductions please continue onto the next section, Payroll Deductions.