Gross pay vs take-home pay
Gross pay is your salary or hourly rate before any deductions — the number on your job offer, the number you tell people when they ask what you make. It's the top line.
Take-home pay (net pay) is what actually lands in your bank account after taxes, benefits, and other deductions are removed. It's almost always significantly less than your gross pay — and it's the only number that matters for budgeting.
What gets taken out of your paycheck
- Federal income tax — withheld based on your W-4 elections
- State income tax — varies by state (some states have none)
- Social Security tax — 6.2% of wages up to the annual limit
- Medicare tax — 1.45% of all wages
- Health insurance premiums — your share of employer-sponsored coverage
- 401(k) or retirement contributions — pre-tax contributions you've elected
- Other benefits — dental, vision, FSA, HSA contributions
A real-world example
A $50,000 salary becomes roughly $2,900/month to budget with. That's a $1,250/month difference from the gross monthly figure of $4,167. Budgeting from the wrong number creates a plan that's impossible to execute.
Always budget from what hits your bank account — not what your employer pays you. The gap is real, significant, and permanent. Your budget needs to live in the real number.
How to find your actual take-home pay
The simplest way: look at your last paycheck or bank deposit. That amount — what actually arrived — is your number. If you're paid bi-weekly, that's your per-paycheck amount. Enter it into BudgetDummy with your frequency and it handles the rest.
What about self-employed income?
If you're self-employed or a freelancer, taxes aren't withheld automatically — you pay them quarterly or at year end. Your "take-home" is essentially your gross income, but you need to set aside roughly 25-30% for taxes before you budget the rest. It's the same principle: budget from the money that's actually yours to spend.