What Is the Amount of Money Left After All Deductions?
Demystify your paycheck. Understand the essential calculation that turns your total earnings into the spendable income you truly have.
Net pay, also known as “take-home pay,” is the amount of money remaining after various mandatory and voluntary subtractions from your total earnings. This final amount directly impacts how much money is available for daily expenses, savings, and investments, making it a central figure in budgeting and financial planning.
Your Gross Earnings
Before any money is deducted, your total compensation from an employer is known as gross pay. This figure serves as the starting point for calculating your take-home amount. Gross pay encompasses all the earnings you accumulate during a pay period. Common components contributing to gross pay include your regular hourly wages or annual salary, overtime hours, bonuses, and commissions.
Types of Withholding and Deductions
After calculating your gross earnings, various withholdings and deductions are subtracted. These subtractions can be either mandatory, required by law, or voluntary, chosen by the employee.
Mandatory deductions include federal income tax, which is withheld from your paycheck based on your income level and the information provided on your Form W-4. State income tax may also be withheld, depending on where you reside, as tax laws vary by state, with some states having no income tax. Certain cities or localities may impose their own local income taxes.
Federal Insurance Contributions Act (FICA) taxes are also mandatory and fund Social Security and Medicare programs. For 2025, the Social Security tax rate is 6.2% of your gross earnings, applied up to an annual wage base limit of $176,100. The Medicare tax rate is 1.45% of all gross earnings, with no wage base limit. An additional Medicare tax of 0.9% applies to earnings exceeding $200,000 in a calendar year.
Beyond these required withholdings, many employees opt for voluntary deductions. Health insurance premiums, for example, are typically deducted from paychecks to cover the employee’s share of medical, dental, or vision insurance costs. Contributions to retirement plans, such as 401(k)s or 403(b)s, are common voluntary deductions, often made on a pre-tax basis, which can reduce your taxable income. Other benefits, like life insurance, disability insurance, or contributions to flexible spending accounts (FSAs), may also be deducted. In some situations, court-ordered wage garnishments for obligations such as child support or defaulted loans are also subtracted from an employee’s pay.
Determining Your Net Pay
After all applicable deductions and withholdings have been accounted for, the remaining amount is your net pay. This figure represents the actual money deposited into your bank account or received as a physical check. Your pay stub or earnings statement provided by your employer details your gross earnings, lists each individual deduction, and clearly shows the final net pay amount. Regularly reviewing your pay stub allows you to verify the accuracy of your pay and understand exactly where your money is going. Understanding your net pay is important for creating a realistic personal budget, setting achievable savings goals, and managing your everyday finances effectively.