Net income is the amount of a person's paycheck that remains after the employer withholds taxes and deductions. Self-employed people have to pay estimated taxes on gross income, which results in their net income. Net monthly income refers to a person's take-home pay on a monthly basis.
Net Income Payments
When a company distributes payroll, it withholds tax amounts for federal, state and, in some areas, municipal taxes. It also withholds for Social Security and Medicare, as well as deductions for things like retirement and insurance. The remainder is delivered as a paycheck or direct deposit. Common payroll options include weekly, semi-weekly, bi-weekly, semi-monthly and monthly. To determine net monthly income, you simply take your typical paycheck amount and calculate it on a monthly basis.
Monthly Income Examples
If you get paid monthly, your net monthly income is simply the net amount on that one paycheck. If you are paid twice a month, your net monthly income is the total of the two paychecks. If you are paid weekly, you multiply the paycheck by 52 to annualize it, and then divide by 12 months to get your monthly net income. For bi-weekly paychecks, multiply the paycheck amount by 26, and then divide by 12 months. For a bi-weekly paycheck of $1,632.15, for example, the net monthly equivalent is $3,536.33. A self-employed person can determine net income by subtracting quarterly estimated taxes from quarterly gross income, and dividing by three. Net monthly income is most important to people who need to budget their take-home pay to cover bills. Lenders typically use gross monthly income to assess credit-worthiness.
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