Gross Pay Versus Net Pay
Gross Pay Versus Net Pay – A Great Conversation to have when you receive your 1st Paycheck
GROSS PAY is the amount an employee earns on a each paycheck BEFORE TAXES.
NET PAY, also referred to as “take home pay”, is the amount the employee receives after taxes & deductions.
Per tax law, the following items must be “withheld” (taken out) from gross pay: Social Security, Medicare, Income taxes (fed& state) & state disability. Per employee, add’l deductions may apply such as retirement, garnishments or additional with-holdings.
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Marisol Martinez earns $2,000/month as an executive assistant. In addition to federal payroll taxes (Social Security & Medicare) and personal income tax withholding, her employer withholds $50 for her retirement
account. Marisol’s net pay is calculated as follows:
Gross pay = $2,000.00
Social Security tax (6.2 percent of gross pay) – $124.00
Medicare tax (1.45 percent of gross pay) – $29.00
Income tax (per Form W-4) – $220.00
Retirement – $50.00
Net pay = 2000 -124 -29 -220 -50 = $1,577.00
Marisol earns $2,000 and “takes home” $1,577. Her employer will send $373 ($124 + $29 +$220) to federal government and $50 to the retirement fund.