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How Do I Determine Net Pay?

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  • Written By: Amanda R. Bell
  • Edited By: E. E. Hubbard
  • Last Modified Date: 09 December 2017
  • Copyright Protected:
    2003-2017
    Conjecture Corporation
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Determining your net pay, which is the amount of money you take home after taxes and other deductions, begins by figuring out your gross pay. This will be based on your yearly salary or how many hours you worked during the pay period. Then, deduct any amounts paid out of your gross pay. At this point, you will have to determine for what percentage of tax you are liable, and also take this out of the gross pay. Once you have a final number, you will need to subtract any benefits or other deductions from the remaining amount to determine your net pay.

Your gross pay is the total amount of money that you earned during a pay period. If you are paid by salary, you can take your annual pay and divide it by how many times a year you are paid. For example, if you receive a check every two weeks, you would divide your annual salary by 26. Those who are paid hourly will need to multiply how many hours they worked during the pay period by their hourly rate.

In many areas of the world, some deductions can be made from your paycheck pre-tax. These can include contributions to retirement accounts, select savings accounts, or some health plans. If you are eligible for any of these, subtract these amounts from your gross pay. The resulting number will be your taxable income.

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The amount of taxes you need to deduct from this amount will vary greatly by your country and its laws, and will ultimately determine your net pay. In most countries, you are required to pay a percentage to the country’s government, taxes for government-funded benefits, and one or more local taxes; your income or the number of people in your household may determine each percentage. Each tax is calculated based on your gross income or your income after pre-tax deductions. For example, if you pay 10% to your country and 6% to your city, both the 10% and 6% will be based on your gross income; you cannot deduct one and then use the remaining amount to determine the other. Once you figure the amount of taxes you owe, subtract these from your gross income.

Payments for different benefits, such as health or life insurance where applicable, are taken from your remaining pay after taxes to determine your net pay. Figure out how much you have to pay per pay period for each benefit and subtract these from your pay after taxes. Any garnishments that have been placed on your paycheck or any money that you have automatically taken out of your paycheck by your employer will also be deducted at this point. The remaining amount after pre-tax deductions, taxes, and post-tax deductions is your net pay.

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