The statement "net income is the amount you get paid before taxes" is incorrect. Net income refers to the amount you receive after taxes and other deductions are subtracted from your gross income. It is often called "take-home pay" because it is the actual money you take home once all mandatory withholdings such as income tax, social security taxes, health insurance premiums, and retirement contributions are deducted. In contrast, gross income is the total amount you earn before any deductions, including taxes.
Key Points:
- Net income is the money left after subtracting taxes and deductions from gross income.
- It is what you actually take home or receive.
- Gross income is the income before these deductions.
Therefore, net income is not the amount before taxes; it is the amount after taxes and other deductions are taken out.
