What is net pay?

Net pay refers to the amount of money an employee takes home after all deductions have been made from their gross income. This includes federal and state taxes, Social Security and Medicare contributions, retirement plan contributions, and any other withholdings. Essentially, it is the final amount that is deposited into an employee’s bank account or provided in a paycheck, representing their actual earnings.

Understanding net pay is crucial for budgeting and managing personal finances, as it reflects the true income that can be used for expenditures, savings, and investments. It distinguishes itself from gross income, which is the total earning before any deductions. Recognizing this difference helps in planning and ensuring one lives within their means.