Understanding take-home pay

Understanding take-home pay

You have an offer for a new job. It will pay you 40 hours per week starting at $15 per hour, which means you’ll be taking home $600 (40 X 15) dollars a week. True or False?


There are numerous deductions from your gross pay (time worked multiplied by the pay rate). Understanding your paycheck and net pay  (the amount you actually receive after deductions) is essential to understanding where you stand financially.

Payroll information

Thoroughly review every paystub or notice of pay. If your employer directly deposits your pay into your bank account, you might need to request the notice (for example, by logging into your payroll system).

Make sure deductions from your pay are correct, and report any problems to your employer immediately. If you have questions, meet with a Human Resources representative and discuss your employer’s benefits.

Standard deductions

Your employer will withhold the following from your pay:

  • Federal withholding tax – Income tax to the federal government, determined by the amount of exemptions* you claim
  • State withholding tax – Income tax to state government (not all states collect state withholding tax on wages earned), determined by the amount of exemptions* you claim
  • Social Security – Also known as FICA (Federal Insurance Contributions Act), a contribution toward future Social Security retirement benefits

*Exemptions are the number of people you support with your income. The more exemptions you claim, the smaller the tax withholding from your pay. You indicate the number of exemptions you claim on the federal W-4 form. 

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.

Other possible deductions:

  • Additional retirement contributions – Contributions to retire plans in addition to Social Security (examples: general employment pension funds, 401K, 503B, savings) 
  • Health insurance – Your portion of health insurance premiums
  • Cafeteria plan or FLEX benefits – Money set aside for child care and/or healthcare, typically not taxed. Note: You must use your contributions in full. If you have a credit balance, you will forfeit it.
  • Wage garnishments – Money your employer deducts as a result of a legal decision (examples: legal judgments such as divorce and child support settlements, bankruptcy, and defaulted loans)
  • Other – Any agreed automatic withholdings (examples: parking and other fees associated with employment)