Deductions are amounts removed from gross pay before it reaches you. Net pay, or take-home pay, is what remains.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
Required deductions
Income tax and payroll taxes for social programmes are compulsory. They come out whether you plan for them or not.
Voluntary deductions
Retirement contributions, health insurance premiums and union dues are chosen. They reduce take-home pay but often buy something valuable.
Computing it
Total every deduction, then subtract that total from gross pay.
The usual surprise
Deductions commonly take a fifth to a third of gross pay. A $60000 offer does not put $60000 in your account.
Budget from net
Every budget must be built on net pay. Building one on gross pay guarantees a shortfall every single month.
Gross is not what arrives
Gross pay is what the job states; net pay is what reaches the account after deductions. The gap is often a fifth to a third of gross, which surprises people planning a budget from the advertised figure.
What comes out
Income tax, social insurance contributions, and often health cover and retirement contributions. Some are legally required and some are elected. Reading a payslip line by line is the only way to know which is which.
Before-tax and after-tax deductions
A deduction taken before tax reduces the income that is taxed, so it costs less than its face value. One taken afterwards does not. The order matters and it is why the two are listed separately on a payslip.
Budget from net, always
A budget built on gross pay will not balance, because a substantial part of that money never arrives. Every planning figure in this course starts from net pay for that reason.
Step 2: Try It Yourself
Tap and try it out.
Gross
Deductions
Take-home
Gross has the most. It has 2250 more than Deductions.
Step 3: Watch an Example
One step at a time.
Watch Marcus Read His Pay Stub
Marcus earned $3000 gross. Deductions are $420 income tax, $186 payroll tax and $150 health insurance.
- Step 1
He totals the deductions: 420 + 186 + 150.
Step 4: Your Turn
Practice makes it stick.
The Stub
Problem 1 of 2
Gross $2000, deductions $500. What is net pay, in dollars?
dollars
The Share
Problem 2 of 2
Gross $2000 and net $1500. What percentage was deducted?
%
What Actually Arrives
1 of 8
Gross $1800, deductions $400. Net pay in dollars?
2 of 8
Deductions of $200, $150 and $90. Total in dollars?
3 of 8
Gross $3000, total deductions $756. Net in dollars?
4 of 8
Gross $4000 with 30% deducted. Net in dollars?
5 of 8
Gross $2500, net $2000. Percentage deducted?
6 of 8
Should a budget be built on gross or net pay? 1 gross, 2 net.
7 of 8
Sort each deduction by whether it is required.
Tap something to move it.
- Empty
- Empty
8 of 8
Gross $5000 with 25% deducted. Net in dollars?
Step 5: Quick Check
Show what you know.
Question 1 of 2
Gross $2400, deductions $600. Net pay in dollars?
Question 2 of 2
Why must a budget use net pay?
What You Learned
- Deductions are removed from gross pay to give net pay.
- Some are required, such as taxes; others are chosen.
- Deductions commonly take a fifth to a third of gross pay.