Take Home Pay
Use this calculator to estimate the actual paycheck amount that is brought home after taxes and deductions from salary. It can also be used to help fill steps 3 and 4 of a W-4 form. This calculator is intended for use by U.S. residents. The calculation is based on the 2023 tax brackets and the new W-4, which, in 2020, has had its first major change since 1987.
Take Home Pay
In the U.S., the concept of personal income or salary usually references the before-tax amount, called gross pay. For instance, it is the form of income required on mortgage applications, is used to determine tax brackets, and is used when comparing salaries. This is because it is the raw income figure before other factors are applied, such as federal income tax, allowances, or health insurance deductions, all of which vary from person to person. However, in the context of personal finance, the more practical figure is after-tax income (sometimes referred to as disposable income or net income) because it is the figure that is actually disbursed. For instance, a person who lives paycheck-to-paycheck can calculate how much they will have available to pay next month's rent and expenses by using their take-home-paycheck amount.
Only after all of these factors are accounted for can a true, finalized take-home-paycheck be calculated. Figuring out this final figure can be helpful. For instance, people often overestimate how much they are able to spend based on an inflated pre-tax income figure. Knowing the after-tax amount of a paycheck and using it to budget can help rectify this issue. For more comprehensive and detailed calculations regarding budgeting, try our Budget Calculator; just note that it also utilizes a before-tax input for income.
A flexible spending account (FSA) is a tax-advantaged account that is usually offered by employers to their employees so they have the ability to set aside some of their earnings. Because contributions into an FSA are deducted from paychecks during payroll before income taxes, less income will be subject to taxation. While it won't show up as an immediate increase in a take-home-paycheck, theoretically, any employee who is going to pay for qualified expenses in the future anyway can have more of their "paycheck" taken home using an FSA instead of as disposable income. The most common FSAs used are health savings accounts or health reimbursement accounts, but other types of FSAs exist for qualified expenses related to dependent care or adoption.
When your employer calculates your take-home pay, they will withhold money for federal and state income taxes and two federal programs: Social Security and Medicare. The amount withheld from each of your paychecks to cover the federal expenses will depend on several factors, including your income, number of dependents and filing status.
If you live in a state or city with income taxes, those taxes will also affect your take-home pay. Just like with your federal income taxes, your employer will withhold part of each of your paychecks to cover state and local taxes.
When reviewing their first paycheck, those who are new to the workforce may wonder why their take home pay is less than their gross pay. The reason is because of taxes, withholdings and deductions such as these:
The number of exemptions you claim on the W-4 can differ from the number that you may claim when filing taxes. However, if you claim more exemptions on your W-4 in order to increase your take home pay, you could end up owing money when you file your tax return.
A recent Wall Street Journal op-ed clearly illustrates how workers are benefitting from the strong economy and tax reform. Specifically, it shows how a typical married couple with no children receives a $2,501 increase (4.9 percent) in take-home pay over one year due to rising incomes and lower taxes.
Taking steps to reduce your tax liability can benefit you at tax time, but you may also benefit throughout the year by adjusting your withholding to increase your take-home pay. If you want a bigger paycheck and a smaller tax refund, you can use Form W-4 to make it happen.
Other employee choices that could be affected by the tax bracket adjustments include how much salary to defer into a traditional 401(k) plan or into a health savings account, which reduces taxable income for a given year by the amount contributed and is a step people often take to keep income from passing into a higher tax bracket. Employees can also choose whether to participate in a nonqualified deferred income plan, if that option is available through their employer.
The IRS Tax Withholding Estimator, also available in Spanish, can help employees determine if they have too much federal income tax withheld, reducing their take-home pay. In other cases, it can help employees with additional income sources to see if they should withhold more or make an estimated tax payment to avoid a tax bill when they file their tax return.
"Proper withholding adjustments help people boost take-home pay rather than be over withheld and get it back as a tax refund," the IRS advised. About 70 percent of taxpayers withhold too much for federal income taxes every year, the agency reported.
The southern state of Tennessee has an income tax, but it applies primarily to income from stocks and bonds and not to money earned from salaries and wages.The median income in the United States is about $56,000. People earning a $50,000 salary take home about $39,129 each year, which comes to $3,261 per month, according personal banking site GOBankingRates, which analyzed take-home salaries in all 50 states.
Alaskans take home an average of $70,607 annually. The state's average income of $92,191 is lower than incomes in Massachusetts and Maryland, but Alaskans hold onto more of their money because there's no state income tax.
The states with the lowest average take-home income are Mississippi, West Virginia, Arkansas, Kentucky and Alabama.With an average yearly income of $56,358, the average Mississippi worker takes home $3,599 monthly. The average annual income in Arkansas is $58,850. Workers there take home $3,687 a month after taxes.
To put this into perspective, Ramsey explains that if you take home $5,000 per month after taxes, according to his 25% rule, you should pay no more than $1,250 per month for a mortgage payment (and that includes the principal payment, property taxes, HOA fees and interest).
Gross income refers to the total amount of money you receive in a given period, while net income is the portion of those funds left over after taxes and other payroll deductions are subtracted. In other words, gross income is your total earnings, while net income is your take-home pay.
If you have a single source of income through a job, you can determine your gross income by checking your pay stub. Your gross earnings usually are listed on the stub, along with details on deductions taken out for taxes, Social Security and other purposes.
Net income is the amount of money you take home after deductions including federal withholding taxes as well as contributions to Social Security, Medicare, health insurance benefits and retirement savings are subtracted from your gross pay.
If you earn a $200,000 salary, you're in the top 10% of earners in the United States. Of course, all of that won't show up in your bank account. Taxes will take a big bite out of your take-home pay. Since state income taxes can vary wildly depending on where you live, the percentage of that $200,000 you get to actually put in your pocket changes from state to state.
GOBankingRates pulled federal and state tax data from the Tax Foundation's 2023 data and calculated using an in-house paycheck calculator to see which states offered the highest take-home pay rates. GOBankingRates also looked at the Federal Insurance Contributions Act tax, sourced from the Social Security Administration. Some states take out bigger chunks than others, so it's important to know exactly how much take-home pay you can expect in every state if you're grossing $200,000.
If you want to keep a big chunk of your $200,000 salary, consider living in Alaska. With no state income tax, Alaskans earning $200,000 can expect to bring home $159,465, among the highest take-home rates in the nation. The state also ranks as the most tax-friendly state for retirees.
Colorado residents earning $200,000 can expect to take home a good amount from their paychecks. Workers in the Centennial State pay a flat 4.55% income tax on all of their taxable income, regardless of the amount.
Although Connecticut has a high top-end state income tax rate of 6.50% for the highest earning residents. Residents earning $200,000 still face a 6.5% or 6% rate, respectively, which is enough to bring the take-home pay down to slightly below the national average.
Delaware's graduated state income tax rate jumps up quickly, peaking out at 6.6% for both single and joint filers. This large tax bite is enough to drag Delaware down to the bottom-third when it comes to ranking take-home pay.
The Sunshine State takes the crown when it comes to take-home pay, with residents earning $200,000 keeping a whopping $159,465, tops in the nation. Although the state has to share this title with eight others, it's not likely to lose its ranking as long as it remains free of state income tax.
High earners in Georgia don't get to keep as much of their pay as the average American due to the rapidly graduated state tax schedule. Georgians making $200,000 are bi-monthly taking home a net paycheck of $5,709.54.
Due to the high state tax rates, Idaho residents earning top salaries get to keep less of it than the average American. The state tax rate is 5.8%. However, Idaho residents still take home nearly $150,000.
Indiana has a moderate flat tax of just 3.15% on all residents, regardless of income. High earners pulling down $200,000 per year can expect to take home a hefty $153,165. Indianans will see a bi-monthly net paycheck of $5,890.96.
High-income workers in the Bayou State take home a bit more than other states. A moderate top state income tax rate of 4.25% applies to single filers and joint filers alike. The total tax burden of state and federal taxes is $48,454 or 24.23%. 041b061a72