Net income (take-home pay)

Also called Net pay

The money you actually receive after taxes, benefit premiums, retirement contributions and other deductions come out of your pay.

What it means

Net income, or take-home pay, is what lands in your bank account. It equals gross pay minus deductions such as federal, state and local income tax withholding, Social Security and Medicare taxes, health insurance premiums and retirement plan contributions.

Because it is the money actually available to spend, net income is the usual starting point for a budget. Two people with the same salary can have very different take-home pay depending on where they live, their benefit choices and how much they save through payroll.

Formula

Net income = Gross income − Taxes withheld − Other payroll deductions

Taxes withheld = income and payroll taxes taken from pay
Other payroll deductions = benefit premiums, retirement contributions and similar items

Example

Suppose your gross pay is $5,000 a month. If $900 is withheld for taxes, $200 goes to health insurance and $300 to a 401(k), your take-home pay is $3,600.

How it’s used

Building a monthly budget
Checking a pay stub for errors
Understanding how a raise, a move or a benefits change affects spendable income

Good to know

Retirement contributions lower take-home pay, but the money is still yours, so it is not a pure cost.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.