What is net income?

Definition

Net income is the total amount of money you receive after taxes, interest, and payroll taxes are deducted from your salary.

How does net income work?

If you are employed by a company, you might receive the same amount of money every week, or varying amounts depending on the number of hours worked. Regardless of the situation, the amount you earn is not what you will actually take home. If you have a single job earning $60,000 a year, that is your gross income, which is the money you receive before any deductions are made.

Example of net income

When you are hired for a new job, you may negotiate an agreed annual salary. If you are earning $60,000 a year, that is approximately $5,000 a month. However, when you receive your pay weekly or bi-weekly, you might notice that the total doesn’t reach $5,000. Your pay stubs will show you the amount that was withheld for taxes and interest, and the amount of your net salary.

Gross pay vs. net income

Gross income vs. net income

The total amount of money you earn before taxes The total amount of money you earn after taxes and deductions are taken out

Net pay is calculated by adding the income you earn from your job and any side jobs and subtracting your tax deductions. Gross pay is calculated by deducting taxes, benefits, and pre-tax contributions from your total income.

Frequently Asked Questions

How do you calculate net income?

To calculate your net income, subtract gross income from legal taxes. These deductions can include state taxes, federal taxes, Social Security contributions, and pre-tax retirement contributions.

Is net income your monthly salary?

No, your salary is your gross income; it is the amount you earn before taxes and deductions. Net income is what you have available to spend.

Source: https://www.thebalancemoney.com/what-is-income-1293714