How to Calculate Net Pay
What is Net Pay?
Net monthly pay is take-home salary after income tax, National Insurance (UK) / Social Security (US), and pension contributions.
Formula
Net monthly income = Gross monthly income − Taxes − Social Security / Medicare − Health insurance − Other deductions
- Gross
- Gross monthly income (Currency)
- Tax
- Income tax withholding (Currency)
- FICA
- Social Security + Medicare (Currency (7.65% employee))
- Net
- Net monthly pay (take-home) (Currency)
Step-by-Step Guide
- 1Gross monthly = Annual / 12
- 2Deduct income tax at marginal rates
- 3Deduct NI/SS contributions
- 4Deduct pension if opted in; Net = Gross − all deductions
Worked Examples
Input
£40,000/yr UK salary 2024/25
Result
Net monthly ≈ £2,520
Frequently Asked Questions
Why is my net so much lower than gross?
Taxes are the big chunk: federal (10–37%), state (0–13%), local (0–4%), FICA (7.65%). Average effective rate: 20–30%. Plus pre-tax deductions (401k, HSA).
How do pre-tax deductions reduce taxes?
401k, HSA, etc. reduce taxable income. $10k in 401k contributions = $2–3k in federal tax savings (assuming 22–24% bracket). Reduces gross but improves net.
Should I claim more or fewer W-4 dependents?
More allowances = less withholding = higher net pay but big tax bill in April. Fewer = overpay but get refund. Aim for break-even (file updated W-4 annually).
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