Gen Z’ers care about their salaries, and for good reason. They’re growing up in a time of high inflation rates. Rent, grocery prices, and other living expenses are rising nationwide. They’re not looking for higher salaries because they’re just money-focused. They’re looking for higher wages because they want to be able to afford to live. Using a take-home pay calculator to understand exactly how much they need to live can help them do just that.
If you’re on your first job search, asking about salary and negotiating your salary might be top of mind. It’s essential to get an accurate picture of what that salary looks like using a take-home pay calculator.
Calculating your take-home pay isn’t as easy as dividing your total salary by 26 (if you’re getting paid bi-weekly). There are federal taxes and state taxes to consider. Insurance benefits, retirement contributions, and more also come out of your paycheck.
We’ve created a simple take-home pay calculator so you can apply for the right jobs and negotiate the salary you need — without any surprises at what taxes get taken out.
What Is Take-Home Pay?
Take-home pay is the amount of money you get after taxes and benefits are deducted from your gross pay.
Gross pay — deductions = take-home pay
What’s gross pay?
“Gross pay refers to the total amount earned before any deductions, and take-home (or net pay or disposable income) is the amount that can be spent after deductions,” says Cindy Scott, CFP® at Charles Schwab’s Schwab Intelligent Portfolios Premium.
Gross pay is the salary you’ll see in a job description and your offer letter. Take-home pay is what you get after taxes and benefits are taken out.
There are a few mandatory things that employers deduct from your gross pay:
- Federal taxes
- State and local taxes
- Social Security tax
- Medicare tax
- Benefits payments, including health benefits, retirement savings plans, and insurance
Your take-home pay can vary greatly depending on your income, where you live, and how much you’re contributing to your benefits.
“It is important for college students to understand that their paychecks do not come in full and will be taxed upon delivery,” Scott says.
So, what are all these different taxes that employers take out of your pay?
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Federal taxes are taxes that everyone in the United States pays on their income. The U.S. works on a progressive tax system, so you’re taxed at higher rates as you make more money. Here’s the federal tax chart for single filers in 2023:
|Tax Rate||Income Bracket||Tax Owed||Average Effective Tax Rate*|
|10%||$0 to $11,000||10% of income||10%|
|12%||$11,000 to $44,725||$1,100, plus $12% of the excess over $11,000||11%|
|22%||$44,725 to $95,375||$5,147, plus 22% of the excess over $44,725||15%|
|24%||$95,375 to $182,100||$16,290, plus 24% of the excess over $95,375||19%|
|32%||$182,100 to $231,250||$37,104, plus 32% of the excess over $182,100||22%|
|35%||$231,250 to $578,125||$52,832, plus 35% of the excess over $231,250||28%|
|37%||$578,125+||$174,238.25, plus 37% of the excess over $578,125|
*Average effective tax rate calculated using average income for each bracket and dividing taxes owed over average pre-tax income. Rounded to the nearest percentage.
Depending on your gross pay, you’ll fall into a specific income bracket; however, the Internal Revenue Service (IRS) doesn’t tax your whole income at the bracket rate.
Federal Tax Example
Let’s say your salary is $100,000. That doesn’t mean the whole $100,000 is taxed at 24%, and you’re left with $76,000 post-tax.
Instead, the first $11,000 is taxed at 10%, the next amount up to $44,725 is taxed at 12%, the next amount up to $95,375 is taxed at 22%, and so on.
To calculate your effective tax rate, or the percentage of taxes you pay overall, you calculate your total tax paid divided by your taxable income.
Continuing with this example:
|Tax bracket||Tax due|
|10%||$0 to $11,000||11,000 x 10% = $1,110|
|12%||$11,000 to $44,725||33,725 x 12% = $4,037|
|22%||$44,725 to $95,375||50,650 x 22% = $11,143|
|24%||$95,375 to $182,100||4,625 x 24% = $1,110|
Tax owed / Taxable income = Effective tax rate
$17,400 / $100,000 = 17.4%
If you make $100,000, your federal tax rate is 17.4%. You’re left with $82,600 post federal taxes.
FICA, the Federal Insurance Contributions Act, is a law that requires employers to withhold money from your paycheck to fund Social Security and Medicare. Both you and your employer contribute to FICA taxes equally. FICA taxes are 15.3% of your earnings, so you pay 7.65%: 6.2% for Social Security tax and 1.45% for Medicare tax.
These are fixed rates that do not change as your income changes.
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State and Local Taxes
Everyone has to pay federal taxes, and most people also have to pay taxes for the specific state (and sometimes even city) they live in.
Each state taxes differently. Some states tax progressively, like federal taxes, where you pay a higher percentage when your income is higher; others tax at a flat rate, so the percentage is the same regardless of income. And others don’t tax at all.
|State||Effective state tax rate|
Sometimes, there are also local taxes in addition to state taxes. For example, New York City residents pay extra income tax to the city and New York state taxes.
Companies often offer fringe benefits to their employees, like health insurance and retirement savings plans. Similar to Social Security and Medicare benefits, the company pays for part of the benefits, and then you pay for the other part.
Depending on the type of benefit, you might see it taken from your paycheck before or after taxes. The advantage to paying pre-tax is that it lowers your taxable income — so you’re in a lower tax bracket when paying federal and state taxes.
Why Should I Calculate My Take-Home Pay Before Accepting an Offer?
Why does all of this matter? Using a take-home pay calculator to figure out your pay before you accept a job offer gives you a clear view of what the company is actually offering you. You don’t want to think you’ve taken your best offer, then get your paycheck and realize your gross pay won’t cover your expenses.
“Using the amount offered, you can determine whether the new salary meets your financial needs,” says Logan Nguyen, co-founder and CMO of NCHC, a health and wellness magazine. “In addition, knowing your take-home pay allows you to understand your entire compensation package, which usually includes your salary and other benefits the employer offers.”
Using a take-home pay calculator to understand your potential gross pay gives you the knowledge and power to ask for what you need.
“Understanding take-home pay empowers students to negotiate better offers, request additional benefits, inquire about performance-based incentives, or make informed choices about pursuing additional education or certifications to boost their earning potential,” says Kraig Kleeman, CEO and founder of The New Workforce, a company that connects businesses with talent.
It’s important to remember that this take-home pay calculator is an estimate, not an exact calculation of your take-home pay. You may have additional (or fewer) taxes depending on your city, what benefits you opt into, and more.
Other Factors to Consider About Take-Home Pay
You’ve factored in taxes and benefits. Is that all that affects your take-home pay? While these are the main factors that influence what you see on your paycheck, here are a few other factors to consider.
While work expenses don’t technically come out of your paycheck, they’re a crucial part of how much money you’ll spend and save every month.
If you’re working a hybrid or in-person role, calculate the costs of your commute, business attire, and even your office lunch or afternoon coffee.
“College students often forget to budget for transportation, clothing, and other miscellaneous expenses that come with starting a new job,” says Evan Tunis, president of Florida Healthcare Insurance. “For example, one job might offer a slightly higher salary but a more expensive commute.”
On the other hand, if you’re working a remote job, factor in costs like Wi-Fi, office supplies, or even noise-canceling headphones.
Before you accept an offer, consider whether you’ll receive any overtime pay. People eligible for overtime pay make less than twice their state’s minimum wage. If these people work more than 40 hours in a workweek, their company must pay them at least 1.5 times their regular pay rate for those hours.
If you’re eligible for overtime and your company expects you to work more than 40 hours a week, this can boost your overall salary; however, the extra money will also affect your tax income bracket.
Sometimes, you might see a job offer with a base salary and a bonus. A base salary is your yearly income, while a bonus is a lump sum you also get to take home — but not every other week. There are a few different types of bonuses:
- Performance-related: if you exceed specific goals or expectations in your role
- Commission-based: in sales roles, when you or your team meets a certain quota
- Situational: around certain seasons or company events, like the holidays or the company going public
Employers typically tax your bonuses at different rates than your base salary. Some employers use the percentage method, taxing your bonus at a flat rate. Others use an aggregate method: they add your bonus to your monthly income, multiply it by 12, and then take out taxes at that new income bracket rate.
For example, let’s say your yearly salary is $60,000 and your usual monthly pay — pre-tax — is $5,000. One month, you get a bonus of $5,000. Your employer would add up the two amounts and multiply it by 12:
($5,000 + $5,000) x 12 = $120,000
Your monthly pay for that one month is then taxed at the $120,000 tax bracket percentage — not at the $60,000 tax bracket percentage.
Cost of Living
While jobs in some states and cities might offer higher salaries, it might be because of a higher cost of living. You may pay higher state and city taxes, but also higher costs for your rent, transportation, food, and other everyday needs. If you’re wondering whether to move for a job, research how much your spending would change for your daily needs. Calculators (like this one from NerdWallet) can help you compare the cost of living between different cities.
>>MORE: Explore the highest-paying jobs in the U.S. in 2023.
Benefits are an essential part of your compensation package. On the job search, look into the company’s health insurance, 401(k) matching, and other perks that might factor into your budget. Benefits like tuition reimbursement or even a free gym membership can make one job more economically appealing than another.
Your research should include not only what benefits the company has but when you’ll be able to get those benefits.
“The biggest mistake is not understanding fully how and when benefits will be paid or kick in,” Prerika Agarwal, founder at Inspiration Careers, says. “For example, how long do you need to be there before you are eligible for a performance bonus or raise? Also, sometimes your health benefits don’t get activated until you are there for 30 days or 60 days. There is a similar situation for 401(k) and employer contribution vesting.”
Take-Home Pay Advice
Knowing your take-home pay is half the battle of getting and budgeting your first paycheck. We asked financial experts how to be financially savvy when negotiating and spending your first paycheck.
Distinguish Wants and Needs
When determining what salary you’re aiming for, distinguish between your needs and wants. What salary would you need to cover your basic needs, like rent, groceries, and other bills? What salary would you need to have more discretionary spending for things like concert tickets or travel?
“Be clear about what you NEED to live versus what you want and what is ideal,” Agarwal says. “Factor in that living in certain cities can be far more expensive and will determine how much money you actually have for savings or spending beyond your housing and basic costs.”
Follow the 50-30-20 Rule
Once you’ve determined the difference between your wants and needs, Scott recommends dividing your take-home pay with the 50-30-20 rule.
“Take-home pay for spending after deductions takes a 50/30/20 model that students should understand before accepting a job:
- 50% of take-home pay should cover needs
- 30% of take-home pay should cover wants
- 20% of income should go to savings (can be a combination of pre- and post-tax deductions or savings)
Following this structure will ensure that you’re funding your immediate needs and saving up to meet long-term financial goals,” Scott says. “Monthly budgeting is an important skill to learn when starting out in your first job.”
Get Smart With Your Savings
It’s annoying to think of benefits as another thing that comes from your paycheck. However, opting into retirement plans like a 401(k) can help you put away money for retirement while reducing your taxable income.
“Less long-term savings means a longer road to retirement,” Scott says. “But it is important to consider that increasing pre-tax 401(k) deductions does not reduce a paycheck by the equivalent amount. It reduces taxable income before other taxes and deductions are applied. If your employer offers a 401(k), aim for an annual contribution of 10-15% of your income between what you contribute and any company match. At the minimum, contribute enough to get the full match. If you don’t have a 401(k) or another employer-sponsored plan, open a traditional or Roth IRA. A Roth can make a lot of sense when you’re just starting out.”
Take-Home Pay Calculator: The Bottom Line
Calculating your take-home pay can be confusing and even frustrating. Still, it’s highly worth it to understand precisely what a company offers — so you can choose the best offer or negotiate for your financial needs.
“It helps you manage your expenses, set realistic budgets, and plan for your future,” Kleeman says. “Knowing your take-home pay also prevents surprises and ensures you can meet your financial obligations.”
Ready to land a job you love — that pays a salary that fits your needs? Explore hundreds of Forage job simulations to help you build skills, learn about careers, and increase your chances of getting hired.
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