Tuesday, March 07, 2006

The Difference between your Gross Wages & your Net Wage

This month I have met a lot of people who get confused between what is a persons Gross Wage and what is their Net wage. To futher complicate matters, Gross Wage and Net Wage can be defined in a few ways. Take This Example:

Gross Pay---- 1000
less Prsa------ 50 (pension amount that is not taxable)
Taxable Wage-- 950 (taxable wage)
Tax----------- 120 (tax on 950)
Ee Prsi------- 60 (prsi on 950)
Net Pay------- 820 (Gross - Tax - Ee Prsi)
Prsa deducted- 50 (Pension paid over to insurance company)
Union dues---- 20 (Union dues paid over to union)
Paid---------- 750 (actual amount employee received)

Gross Wage is the advertised wage e.g. 30,000 p.a Gross
The net wage is after taxes but before other deductions

If you paid no pension and no union dues your pay packet may look something like this:

Gross Pay---- 1000
Tax----------- 120
Ee Prsi------- 60
Net Pay------- 820 (Gross - Tax - Ee Prsi)

In this case Net pay is your take home pay of 820.

People with the same Gross pay may not get the same Net pay.
This can be because they are married or single. When married you get higher tax credits and pay less tax (you don't go into 42% tax bracket as fast)
Other difference in your tax credits will mean you pay more or less tax than someone else. Two people receiving the same Net pay does not mean that they are on the same Gross pay.

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