Final answer:
Take-home pay is the net income after all deductions, including taxes and other withholdings. It's calculated by subtracting these deductions from your gross income. An example calculation shows that with a gross pay of $1500 and $500 in taxes, the net income would be $1000.
Step-by-step explanation:
Take-home pay is the amount of money you have left after all the mandatory and optional deductions have been subtracted from your gross income. This includes local, state, and federal taxes, as well as social security, medicare, and any other optional deductions such as retirement plan contributions or health insurance premiums. To illustrate, if your gross pay is $1500 biweekly and required taxes come out to be $500, you would have a net income of $1000.
Deductions from wages known as withholding tax, cover advance payment of income tax and contributions to social security, unemployment, and disability insurances. Employers may also pay certain taxes based on the employee's wages, which are not deducted from the employee's gross pay but are the responsibility of the employer.
To calculate after-tax income, simply subtract the tax amount from your gross income. For example, with a national income of $300 and a tax rate of 20%, you would subtract the $60 tax amount from the $300, leaving a net income of $240.