Calculating your take-home pay is an essential step for effective personal budgeting. While your gross salary might look great on an offer letter, the amount that actually lands in your bank account—your net pay—is what determines your purchasing power.
Gross Pay vs. Net Pay
Gross Pay is the total amount of money you earn before any taxes or deductions are removed. This includes your base hourly rate multiplied by your hours worked, plus any overtime (usually calculated at 1.5 times the base rate for hours exceeding 40 per week).
Net Pay, commonly known as "take-home pay," is the remaining balance after all mandatory and voluntary deductions are subtracted. This is the money you use to pay rent, buy groceries, and save for the future.
Common Deductions to Consider
Federal Income Tax: Based on your tax bracket and filing status (Single, Married Filing Jointly, etc.).
State Income Tax: Varies significantly by state; some states like Florida or Texas have 0% state income tax.
FICA (Social Security and Medicare): Mandatory federal payroll taxes.
Health Insurance Premiums: The portion of your medical, dental, or vision coverage paid by you.
Retirement Contributions: Pre-tax or post-tax contributions to 401(k) or 403(b) plans.
Calculation Example
If you earn $30.00 per hour and work 45 hours in a week:
Regular Pay: 40 hours × $30 = $1,200
Overtime Pay: 5 hours × ($30 × 1.5) = $225
Total Gross Pay: $1,425
If your combined tax rate (Federal + State) is 20%, you subtract $285.
If you have $50 in health insurance deductions, your estimated Net Pay is $1,090.
Note: This calculator provides an estimate for educational purposes. Your actual paycheck may vary based on local tax laws, specific FICA calculations, and employer-specific benefits.