Deductions are amounts removed from gross pay before it reaches you. Net pay, or take-home pay, is what remains. Income tax and payroll taxes are compulsory; retirement contributions, health insurance and union dues are chosen. Total every deduction, then subtract from gross.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
Try it first
Jo worked 20 hours at $15 an hour. Before her pay reaches her bank, 10% of it is kept back for tax. How many dollars reach her bank?
dollars
Stuck is fine. Let’s Learn shows the way next. Got it first time? You can jump ahead to Watch an Example.
Deductions as percentages
Income tax at 14% of $3,000 is $420. Payroll tax at 6.2% is $186. A fixed $150 for insurance. Percentages scale with gross; fixed amounts do not. Compute each, then add.
Over a year
$2,244 a month is $26,928 a year of take-home from a $36,000 job. The $9,072 gap is real money that never arrives. A $60,000 offer does not put $60,000 in your account.
Voluntary deductions buy something
A 5% retirement contribution of $150 lowers take-home to $2,094, but the $150 is still yours, growing. Insurance premiums buy cover. Reduce take-home knowingly, for value received.
Before or after tax
A retirement contribution taken before tax lowers the taxable amount: $150 contributed saves 14% × 150 = $21 of income tax, so take-home falls by $129, not $150. Read the stub to see which deductions come first.
Budget from net
Every budget must be built on net pay. Building one on gross pay guarantees a shortfall every single month, because the money the budget counts on never arrives.
Ask for the take-home
When offered a job, ask what the take-home is, or estimate it at 70 to 80% of gross. The advertised figure is gross, and the gap is larger than most people expect.
Step 2: Try It Yourself
Tap and try it out.
Gross $4,000 a month. Income tax 15%, payroll tax 6.2%, health insurance $180, and a 5% retirement contribution taken before income tax. Net pay?
- 1retirement: 0.05 × 4,000 = $200, before taxtaxable income becomes $3,800
Step 0 of 4
Gross pay, and where it goes
$2,250$420
- Take-home pay$2,250
- Income tax 14%$420
- Payroll tax 6%$180
- Health insurance$150
Gross $3,000. Deductions $420 + $180 + $150 = $750. Net pay $2,250.
Deductions take 25% of the gross. Build the budget on $2,250, not on $3,000.
Step 3: In Real Life
The same paycheck
680 gross. Federal tax, Social Security, Medicare and state tax take about 150. Net pay is 530. The offer said 680; the bank sees 530.
Step 4: Watch an Example
One step at a time.
Watch Sofia Work Out Her Take-Home
Sofia earns $2,500 a month gross. Her stub takes income tax at 12%, payroll tax at 6.2%, and a fixed $90 for health insurance.
- Step 1
The two taxes are percentages, so each is a share of the gross. Income tax is 0.12 × 2,500 = $300, and payroll tax is 0.062 × 2,500 = $155.
Watch Diego Read a Stub With a Pre-Tax Deduction
Diego earns $2,000 a month gross. He puts 5% into retirement, taken before tax. Income tax is 10%, and payroll tax is 6.2% of the full gross. He works the first line, and you work three of the steps after it.
- Step 1
The retirement contribution comes out first: 0.05 × 2,000 = $100. Because it is taken before tax, income tax is figured on what is left, 2,000 − 100 = $1,900.
Step 5: Your Turn
Practice makes it stick.
The Yearly Gap
Problem 1 of 17
Kai is offered a job paying $30,000 a year, paid monthly. Deductions take $625 from every monthly paycheck. How many dollars of take-home pay does Kai get in a year?
dollars
The Raise
Problem 2 of 17
Lena gets a raise of $200 a month in gross pay. Her taxes take 25% of every extra dollar she earns, and her other deductions stay the same. How many more dollars reach her account each month?
dollars
What Actually Arrives
Work out every deduction, total them, then take the total from gross.
Problem 3 of 17
Gross pay is $1,600. The deductions are $180, $95 and $45. What is the net pay, in dollars?
dollars
Problem 4 of 17
Gross pay is $2,000 a month. Income tax is 12% and payroll tax is 6.2%, both of gross. There are no other deductions. What is the net pay, in dollars?
dollars
Problem 5 of 17
Gross pay is $3,500 a month. Income tax is 10% of gross, and health insurance is a fixed $150. What is the net pay, in dollars?
dollars
Problem 6 of 17
Gross pay is $2,500 and net pay is $1,950. What percent of gross was deducted?
%
Problem 7 of 17
Gross pay is $3,000. A 4% retirement contribution is taken before tax, and income tax is 15%. How many dollars of income tax are paid?
dollars
Whose Step?
One line in each piece of work is a slip. Find it, then fix it.
Problem 8 of 17
Dev worked out his net pay from his stub. One line is a slip. Which?
Dev’s stub: gross $2,800, deductions $350, $174 and $120
- 1350 + 174 = $524 in deductions
- 22,800 − 524 = $2,276 net
- Answer2,276 ÷ 2,800 ≈ 81% arrives
Problem 9 of 17
What should Dev’s net pay be, in dollars?
dollars
Problem 10 of 17
Maya worked out her net pay with a pre-tax retirement contribution. One line is a slip. Which?
Maya’s stub: gross $3,000, a 5% retirement contribution before tax, income tax 10%
- 1retirement: 0.05 × 3,000 = $150
- 2taxable: 3,000 − 150 = $2,850
- 3income tax: 0.10 × 3,000 = $300
- 4deductions: 150 + 300 = $450
- Answernet = 3,000 − 450 = $2,550
Problem 11 of 17
What should Maya’s net pay be, in dollars?
dollars
Problem 12 of 17
Sam planned a month of spending and saving. One line is a slip. Which?
Sam’s month: gross $2,600, deductions $520. Rent $950, food $400, car $350
- 1950 + 400 + 350 = $1,700 spending
- 22,600 − 1,700 = $900 left to save
- Answer900 × 12 = $10,800 saved in a year
Problem 13 of 17
How many dollars does Sam really have left to save each month?
dollars
Pick the Move
Decide what to work out first, before working anything out.
Problem 14 of 17
Ana’s stub has a retirement contribution taken before tax, income tax as a percent, and a fixed insurance premium. Which does she work out first?
Problem 15 of 17
Noor is offered $48,000 a year and wants a quick estimate of her take-home. Which move gives it?
Same Take-Home?
Different stubs can leave the same amount. Judge which do.
Problem 16 of 17
Select every stub that leaves the same take-home as a $2,000 gross with $400 deducted.
Problem 17 of 17
Kim’s income tax is 20%. She could start a $150 retirement contribution taken before tax, or a $120 insurance premium taken after tax. Do the two lower her take-home by the same amount?
Step 6: Quick Check
Show what you know.
Question 1 of 2
Gross $2400, deductions $600. Net pay in dollars?
Question 2 of 2
Why must a budget use net pay?
Ready for more?Optional. Past the lesson, for anyone who wants it.
Stretch 1 of 2
Rosa needs at least $2,000 of take-home pay a month to cover her budget. Her deductions take 20% of her gross pay. What is the smallest monthly gross pay, in dollars, that covers her budget?
dollars
Stretch 2 of 2
Tom earns $3,000 a month, and his income tax is 20%. He wants to start a retirement contribution taken before tax, but his take-home may fall by no more than $240. Nothing else on his stub changes. What is the largest contribution he can make, in dollars?
dollars
What You Learned
- Deductions are removed from gross pay to give net pay.
- Some are required, such as taxes; others are chosen, and a pre-tax deduction lowers the tax too.
- Deductions commonly take a fifth to a third of gross pay.
- Build every budget on net pay.
For the grown-up
The misconception this lesson targets is that the advertised pay is the money you will have. A salary or hourly rate is gross; what reaches the account is net, commonly a fifth to a third less, and a budget built on gross runs short every month by the full amount of the deductions. Two smaller slips ride alongside it: forgetting a deduction when totaling a stub, and taking income tax on the full gross when a retirement contribution comes out before tax. The second runs both ways: a pre-tax contribution of $150 at a 14% tax rate lowers take-home by $129, not $150, which is why saving this way costs less than it looks.