Definition
Net income is the amount of money you actually receive in your paycheck after all taxes, insurance premiums, and other deductions are subtracted from your gross (pre-tax) salary. It is the true foundation of any personal budget because it represents the money you actually have available to spend, save, or invest.
Example
You earn $70,000 per year gross ($5,833/month). After federal and state income taxes (roughly 22% effective rate), Social Security (6.2%), Medicare (1.45%), and health insurance ($250/month), your net income is approximately $3,700/month. Your budget must be built around this $3,700 — not the $5,833 gross figure.
How It's Calculated
Net Income = Gross Income − Federal Tax − State Tax − FICA (Social Security + Medicare) − Pre-tax Deductions (health insurance, 401k, FSA, etc.). The exact amount depends on your tax bracket, filing status, and benefit elections.
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