Net Pay Definition

Term Definition
Net pay is the amount received by an employee. It is computed by subtracting any deductions and contributions from the gross pay total.

Extended Definition
Also known as “net wages” or “net income,” net pay is the amount that remains after subtracting federal income tax, Medicare and Social Security taxes, state and local income taxes, health and dental insurance premiums, retirement contributions, contributions to flexible spending accounts and other obligations from the individual’s gross income. The remaining money, or net pay, are used by an employee to pay general living expenses, including housing, food and discretionary items.

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