Gross pay and net pay

From gross to net

Net pay = gross pay − before-tax deductions − taxes − after-tax deductions.

For example, someone earning $60,000 a year and living in Columbus, Ohio pays $5,020 in federal income tax, $4,590 for Social Security and Medicare, $1,207 in Ohio income tax and $1,500 in Columbus city tax. Net pay is $47,684 a year, or $1,833.98 every two weeks: $79.47 of every $100 earned.

Which number to use when

• Job offers and salary negotiations are in gross pay.
• Budgets should be built on net pay.
• Mortgage and rental applications usually ask for gross income.
• Tax returns start from gross pay, less before-tax deductions (box 1 of your W-2).

As a rough guide, net pay is 70% to 85% of gross pay for most full-time workers, depending on income, state and benefits. The calculator gives the exact figure, and the salary needed calculator works backwards from net to gross.