How to calculate your take-home pay

What comes out of a paycheck, marginal vs effective tax rates, and a simple way to estimate your net pay.

Your salary and the money that lands in your bank account are two different numbers. The gap is taxes and deductions. Knowing what each one is helps you budget and compare job offers honestly. Gross pay vs net pay Gross pay is what you earn before anything is taken out — the salary in your offer letter, or your hourly rate times your hours. Net pay, or take-home pay, is what is left after taxes and deductions. For many people in the US, take-home pay is roughly 70% to 80% of gross. What comes out of a paycheck In the US, the usual deductions are: Marginal vs effective tax rate Income tax uses brackets: each slice of income is taxed at its own rate. Your marginal rate is the rate on your last dollar. Your effective rate is your total tax divided by your total income, and it is lower than your marginal rate. A simple made-up example: if the first $10,000 is taxed at 10% and everything above it at 20%, someone earning $50,000 pays $1,000 + $8,000 = $9,000. Their marginal rate is 20%, but their effective rate is $9,000 ÷ $50,000 = 18%. This is why a raise never lowers your take-home pay because of tax: only the extra dollars are taxed at the higher rate. A quick way to estimate Take-ho…