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Take Home Pay: Know The Amount That Makes It Into Your Bank Account

In the terrifying world of job hunting, take home pay is something that many job seekers seem to glaze over. Culturally, we tend to hyper focus on gross salary amounts when we’re searching for prospective jobs, and sometimes forget to actually break down real world numbers and figure out what amount of money we are bound to receive after paying all taxes.

Mobility and taxability

Millennials are a mobile crowd, and many of us think little of moving to a new city for career opportunities. Needless to say, take home pay — the amount of money from your paycheck that’s at your disposal at the end of any pay period — should pay a critical role in making career-related decisions.

Many of us end up discovering what our take home pay is when we get our first check, which is now typically inserted into our personal bank accounts through a nifty thing called direct deposit. Take home pay should be something we calculate way before we start a new job, in order to see if we can afford to survive on our new prospective salary.

Taxes widely vary across cities and states, and those tax differentials can be pivotal to your financial independence, because even an extra 5 percent difference can make or break your financial health.

Federal vs. State income tax  

In addition to Social Security and Medicare taxes, virtually all workers in the United States are subject to federal income tax. So, whether you take a job in Cleveland, Tucson, or Honolulu, you will be paying federal income taxes.

Where it gets a bit dicier in the world of take home pay are state income taxes. If you live in a state without income tax (Florida, Texas, New Hampshire, Nevada, Washington, Wyoming, Alaska, South Dakota, and Tennessee), you need not worry about these taxes. Naturally, these states make up for lost revenue in other ways (for instance increased property taxes), so it’s not exactly a free ride.

Some states have very high income taxes. California has notoriously high state income taxes that can wind up costing you an extra 13% of your check on top of federal taxes. Unless you’re making an absurd about of money, you’ll probably be paying a much lower rate than that.

New York City: Local Tax Too

It’s not always only the federal and state governments collecting income taxes, sometimes cities do as well. The Big Apple is a major employment center, and millions flock there for relatively lucrative positions in the industry of their choice. Beyond just smelly subway rides, that means that New York City residents face a city income tax on top of federal state taxes. So before you pack your bags for your dream job, be sure to consider whether you can afford that $1,600 per month apartment with all taxes taken into account.

In some cases, high income earners can end up paying nearly 50 percent of their income in taxes if they live in the city. New York City is not alone, as there are 14 states plus the District of Columbia that allow cities, counties, and municipalities to levy unique taxes for their area.

Remember, people often receive money from their tax returns, etc.

Take home pay isn’t a final number, as you could potentially receive money back from your tax return. In fact, you’ll quickly learn as a working person that having a good accountant or tax professional is extremely prudent when filing your taxes. Millions of us receive tax refunds after we file our tax returns, and they are often large enough to give a taxpayer a significant windfall. Nevertheless, you’ll need to survive on your monthly take home pay until tax time comes around.

Take away: A little research goes a long way.

On your pay stub, which is often now sent to you digitally, you can dive into what amounts were deducted from your paycheck in a given pay period.

However, there are also many websites dedicated to giving you a quick calculation of what your take home pay will look like. is an excellent resource for people looking at different career opportunities across the country. A few rapid calculations will reveal large variations in take home pay in different cities and states.

For instance, if you’re offered two positions paying $50,000 a year, and one is in Tampa and the other is in New York City, consider that the pay difference after taxes comes out to around $300 a month. State and local tax burdens are an important factor to consider when choosing where to take a job and settle down.

Before you take a job, calculate your take home pay, and use that as the building block for a working budget. Knowing your take home pay assures that you’re not setting yourself up for financial failure, especially if you’re moving far away from home to start your career.

Cross-Posted From 

Header image: Shutterstock

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