Gross Pay Is Not Spendable Money: Read Your Paycheck

Financial education note: This article is for general education, not individualized financial, investment, tax, legal, or credit advice. Rules, rates, taxes, and products change. Verify current details with the appropriate official source or qualified professional before making a decision.

Financial Literacy Saturday · Week 9

A salary offer is not the same thing as the amount available to spend.

Gross pay comes before deductions

Gross pay is earnings before deductions. Net or take-home pay is what remains after federal and state taxes where applicable, Social Security and Medicare taxes, benefits, retirement contributions, and other payroll deductions.

Federal income tax is pay-as-you-go

The IRS says employees generally pay federal income tax during the year through paycheck withholding. The amount withheld depends on income and the information provided on Form W-4.

Read one paystub

Find gross pay, federal withholding, state or local withholding if applicable, Social Security and Medicare, insurance or benefit deductions, retirement contributions, and net pay.

Review withholding when life changes

The IRS recommends checking withholding when circumstances change, including marriage, divorce, a second job, a spouse starting or stopping work, or other significant changes.

Try this

Circle the net-pay number on your paystub. That is the starting point for your monthly spending plan.

Keep this

Gross pay describes earnings. Net pay describes the cash available after payroll has done its work.

Current resource: IRS: Tax withholding.

Related reading: Checking, Savings, and the Job of Each Dollar and Your First Emergency Fund Is Not About Being Rich.