What is net pay? How it works, how to calculate it and its difference from gross pay

Tax season is upon us. For some, it may be your first time filing taxes. And even for those who have filed for years, taxes are not always the easiest task to tackle.

Here’s what you should know about net pay, what it is, how to calculate it and the difference between it and gross pay.

What is net pay?

Net pay is the amount of money employees earn after payroll deductions are taken away from gross pay. These includes taxes, benefits, wage garnishments and other deductions.

In simple terms, net pay is the money you take home directly from your paycheck.

For example, if someone gets paid $1,200 per week but $160 is taken away by deductions, the person’s net pay will be $1,040 per week.

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What is gross pay?

Gross pay is an employee’s total earned wages before payroll deductions.

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What is net income?

Net income, also known as net earnings, is the total revenue of a company minus operating costs. This includes the cost of goods, taxes, interest, operating expenses, selling, general and administrative expenses and depreciation.

Net income is used as a measure of profitability.

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This article originally appeared on USA TODAY: What is net pay? Here’s how it works and how to calculate it