Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Take Home Pay

What it is:

Take home pay is the portion of one's salary left after all payroll taxes have been deducted.

How it works (Example):

John Doe has a salary of $100,000. He is paid 26 times per year (every other Friday). The federal and state payroll taxes (Social Security, Medicare, unemployment, and federal withholding) amount to, say, 10% of his salary.

John Doe's salary divided by 26 paychecks equals $3,846.15 per paycheck. However, because John Doe has payroll taxes withheld, his take home pay is actually 90% of that, or $3,461.53.

Why it Matters:

Understanding the difference between salary and take home pay is important for anyone trying to create and live on a household budget. Taxes are not the only thing that can affect take home pay. If a person is having alimony, child support, retirement plan contributions, or other money withheld from his or her paycheck, these things will also affect the person's take home pay.