Gross Wages
Gross wages refer to the total amount of money paid by an employer to an employee for the work performed, before deductions like taxes and contributions to retirement plans or health insurance premiums.
For instance, if a job offer mentions a yearly salary of $60,000, that is the employee’s gross wage. However, this is not the amount that the employee will actually take home. Various deductions will be subtracted from the gross wages, including but not limited to:
- Federal, state, and possibly local income taxes
- Social Security and Medicare taxes (often referred to as FICA)
- Contributions to retirement plans like a 401(k) or 403(b)
- Health, dental, and/or vision insurance premiums
- Life or disability insurance premiums
The remaining amount after all these deductions are subtracted is referred to as the employee’s net wages or take-home pay. For most employees, the take-home pay will be significantly less than the gross wages due to these various deductions.
Example of Gross Wages
Imagine you’re an employee at a company where your salary is $50,000 per year. This is your gross wage. However, you won’t actually receive the full $50,000 because there will be deductions made for various things like taxes and benefits.
Here’s a hypothetical breakdown:
- Federal income tax: $5,000
- State income tax: $2,500
- Social Security and Medicare (FICA): $3,825
- Health insurance premiums: $1,200
- 401(k) retirement contribution: $2,500
So your total deductions would be: $5,000 (federal tax) + $2,500 (state tax) + $3,825 (FICA) + $1,200 (health insurance) + $2,500 (401(k)) = $15,025.
You would then subtract these deductions from your gross wage to find your net wage (or take-home pay): $50,000 (gross wage) – $15,025 (deductions) = $34,975.
So in this example, even though your gross wage is $50,000, your net wage that you actually take home would be $34,975 after all the deductions are taken into account.
