Take Home Pay vs Gross Pay - Key Differences
Take home pay is the amount of money a person receives after taxes and other deductions are removed from their paycheck.
This is typically how much money a person has to live on each month.
Gross pay on the other hand is the amount a person takes prior to taxes.
There are various pay periods on a person's pay stubs and that will dictate how often heor she receives their take home pay.
Here are examples of deductions which can impact take home pay
401(k) or other retirement contributions
health insurance premiums
HSA account contributions
FSA account contributions
Here are some 4 key differences between take home pay and gross pay
1. Take home pay is the amount of money that you receive after taxes and otherdeductions have been taken out of your gross pay.
2. Gross pay is the amount of money that you earn before taxes and other deductionsare taken out.
3. Take home pay is typically lower than gross pay because of the taxes and deductionsthat are taken out.
4. Take home pay can vary from week to week or month to month depending on howmuch you earn, whereas gross pay is usually the same each week or month
Here are 4 steps to calculate your take home pay
1. Calculate your gross pay for the pay period.
2. Subtract any deductions from your gross pay to calculate your net pay.
3. Subtract any taxes from your net pay to calculate your take-home pay.
4. Finally, subtract any other deductions, such as 401(k) contributions or health insurance premiums, from your take-home pay to calculate your final take-home pay.
Here is some information on 401k and how it works
If you want to make your calculations much faster, you can create a pay stub for more convenience.
Pay stubs are a great way to make sure your gross pay and net pay are tracked easilyand you can also make other calculations such as your tip income or your YTD which isimportant for your progress in working