It is important to understand the difference between gross and net income. Your paycheck may show a lower take-home amount than what you expect from your salary or hourly wage. Knowing the difference between the two will help when planning your expenses.
Gross income is a person’s total income earned before taxes and other deductions. Earned income includes salaries, wages, bonuses, tips, and self-employment income.
Net income is a person’s income earned after deductions and taxes. Net income is the percentage of take home pay from each paycheck.
Statutary Withholdings on a paycheck include:
- Federal Income Tax
- Social Security Tax
- Medicare Tax
- State and Local Income Tax
There are other deductions that impact your net income that may include:
- Flexible- Dependent Care
How you adjust your withholdings has a direct impact on your paycheck. Be sure to review the federal and state withholding forms and apply accordingly. The more money that is withheld from your paycheck, the smaller the paycheck. The less money that is withheld from your paycheck, the larger the paycheck. Make the best use of your money, and have the right amount of tax withheld.
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