Net income (pay)

Definition

Net income (pay) is the amount of money an employee takes home after all deductions have been subtracted from their gross pay. It is often referred to as 'take-home pay.'

5 Must Know Facts For Your Next Test

1. Net income is calculated by subtracting all payroll deductions, such as taxes and retirement contributions, from gross income.
2. Common payroll deductions include federal and state taxes, Social Security, Medicare, and health insurance premiums.
3. Employers are responsible for calculating both gross and net incomes for their employees during payroll preparation.
4. Net income can be found on a pay stub which provides a detailed breakdown of gross pay and all deductions.
5. Errors in calculating net income can lead to legal issues and employee dissatisfaction.

Related terms

Gross Income: The total earnings before any deductions are taken out.

Payroll Deductions: Amounts withheld from an employee's gross pay for taxes, benefits, or other obligations.

Pay Stub: A document provided by employers that details an employee's earnings, deductions, and net pay.