Like the title asks, this is one thing about America I am never sure about. In Europe, at least where I live, everyone refers to the income they take home when discussing salaries. Do the Americans do the same or use the gross income, before tax?
If so, why is that used instead of the net, after tax, income?
27 comments
Pre-Tax since different things can be taken out of a paycheck depending on your electives.
Pre tax, since not every state taxes you the same and not everyone has the same tax situation at the federal level.
Pre-tax if talking about annual salary. “Is earning $78,000 for a first electrical engineering job an ok salary?” That means the job pays $78k gross.
Post-tax if talking about the amount of your paycheck. “I just got paid. That $2700 is spent as soon as it hits my account.” That means the net pay after taxes was $2700 for this pay period.
Pre-tax if talking about annual salary. “Is earning $78,000 for a first electrical engineering job an ok salary?” That means the job pays $78k gross.
Post-tax if talking about the amount of your paycheck. “I just got paid. That $2700 is spent as soon as it hits my account.” That means the net pay after taxes was $2700 for this pay period.
Pre-tax. I make half of what I earn pre-tax after taxes because of the state I live in.
Pre-tax is the only way to get an apples-to-apples comparison here.
As other posters mentioned, your taxes will vary based on your state, marital status, deductions, etc. Also, you can choose to invest in a tax-advantaged retirement account like a 401k, which can dramatically reduce your taxable income. For instance, someone who earns $70k gross could park $20k of that in a 401k, and then their taxable income for the year would only be $50k.
Pre-tax. I don’t even really know what I make post-tax.
Pre tax.
After tax can be very complicated depending on what you have taken out for health insurance or 401ks or pensions or health saving accounts, also state taxes vary wildly and federal exemptions you take, can get really complicated hard to compare one’s net income versus another.
Pre-tax.
There’s Federal income tax, after that it gets confusing. Every state has it’s own tax laws. You may pay state taxes. There might be city/municipal taxes as well. Some states have no state income tax. Some have no local income tax.
Americans also have health insurance taken out of their paychecks pre-tax. Contributing to a traditional retirement account is pre-tax. Doing so reduces your taxable income.
More convenient to just say pre-tax since everything is not nice and neat.
Pretax… my paycheck contains a mix of my salary, bonus, perdiem and vehicle allowance.
I’d have to do math to actually figure out what my after-tax salary is.
Typically pre-tax as tax rates vary by person.
If someone is talking about what they take home after taxes, they’ll usually specify “take home” pay: otherwise, they almost always mean pre-tax income.
Gross, pre-tax, annual basis. $100,000 a year.
Unless someone is an hourly employee, where they may say their hourly wage.
Pre-tax. There’s a lot of things that can affect your net pay rate. What state/county you live in, marital status, number of dependents, disabilities, tax free expenses, retirement contributions, and a lot of other things. That’s without the fact that people who have multiple jobs might be in a different tax bracket. It’s also without the fact that some people have other things that will be payroll reductions such as healthcare, stock options, and retirement contributions.
So, two people who work the same job at the same pay might have a completely different number on their take home.
Well there is Sales Tax for when you buy things, Income Tax, and of course one famous tax is called the Pink Tax. Some states don’t have income tax or sales tax.
There are 5 states that have no sales tax, those states are Alaska, Delaware, Montana, New Hampshire, and Oregon.
States with no income tax:
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
As for how sales tax works, let’s use Dollar tree for example, You buy an energy drink for 1 dollar, once you go to the register to pay you have a percentage of tax, For example here in Texas the sales tax is 8% ($0.08) for every dollar you spend. So once you buy your energy drink, your total will be $1.08.
Now for Income Tax, lets say that you work for a trucking company, and your salary is $75,000 per year, one way people increase their gains is simply by investing in the stock market to make the money go to work for them. Let’s say you got your paycheck, they do deductions from your income to pay the Tax. Thats the gist of it, if anyone in here with an economics background or business and finance background would like to add on, please do!
The number given is somewhere between gross and net.
It is after the “employer share” of payroll taxes and the “employer share” of health insurance premiums are taken out. Employer matching retirement account contributions are also excluded.
But it is before the “employee share” of health insurance premium and payroll taxes. It is also before the regular income tax and the before the employee’s retirement account contribution.
Different people have different tax situations, so two people with the same base income could have quite different income tax amounts. You can also adjust the amount of retirement savings taken out, and you wouldn’t say you have a lower pay just because you chose to have more put in the retirement account. Or health savings account for that matter.
If your base pay is 100K, the true gross might be 115K but take home pay might be 70K. However, considering that some of the deductions go to your retirement account or your health insurance, maybe you are getting more like 90K total, with the other 20K just not in regular cash.
Typically I use gross wages, since historically my tax situation has often fairly dramatically shifted mid year, so I won’t really know post tax income until after the year is over.
I think usually it’s pre-tax unless they specifically mention at what stage of the wages they are referring to
Usually pre-tax. We hate to be reminded that the country steals up to 37% of our paycheck. I’d rather not think of it.
Gross income.
Due to the way the US tax system works, two employees at the same company with the same gross income can have substantially different net incomes.
That’s odd, in the UK it’s always pre tax.
Always pre when talking about salary, because post can vary widely depending on what state you’re in, whether you’re married or single, whether you own a house, whether you’re an employee or contractor, how much you’re putting into your retirement plan… Most of the time the post-tax comparison is just not useful.
When talking about actual money can be either pre (“I get paid $1K per pay period”) or post (“I get paid $1K on Fridays”)
I never actually know what my post-tax income is until after I’ve done my annual tax return in the spring. Even then, I don’t actually bother to calculate it. But the amount of tax I end up having to pay varies based on how the tax law changes and various other things in my life that may change my taxation amount. I could roughly estimate my post-tax income based on what goes into my bank account, but I don’t actually know what it ends up being off the top of my head.
Pre tax
Gross Income
It’s nice to see a Romanian in an American sub. Too often I’m the American in the Balkan one!
My partner is Romanian, so I love both cultures.
—
Wages are pre tax everywhere I’ve lived.
Some people do say “I bring home x amount of money per check,” and that will be post tax/post deductions.
Or if you hear something like “I make 2000 a week,” or “I make about 5,000 a month,” those kinds of statements typically refer to their post tax paycheck.
When discussing pay, there’s a variety of different verbal hints if someone is talking about pre or post tax. Gross pay, take-home, annual, etc.
Context wise, employers always talk pre-tax. When you talk about long term payments, its usually pre. If you’re talking short term its usually post.