Net of taxes means the amount left after every applicable tax has been subtracted from a gross figure. Earn $80,000, owe $14,000 across federal, state, and payroll taxes, and your net-of-taxes income is $66,000. That number, not the headline salary, is what you can actually spend, save, or invest, and the gap between the two catches people off guard more often than almost any other personal-finance idea.
The Basic Formula
The math is simple: take the gross amount, figure the total tax owed, subtract. Written out, that’s Net = Gross − Tax, or Net = Gross × (1 − Tax Rate). A $10,000 payment taxed at 24% leaves $10,000 × 0.76 = $7,600.
The harder part is picking the right rate. Federal income tax alone runs through seven brackets for 2026, from 10% on the first $12,400 of taxable income for a single filer up to 37% above $640,600.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Most workers also owe Social Security and Medicare, most states add their own income tax, and some localities pile on more. A single “tax rate” rarely captures all of it, so a proper net-of-taxes calculation stacks every layer that applies.
Net of Taxes on a Paycheck
For wage earners, the concept shows up every pay period. Your employer withholds federal income tax based on the W-4 you filed, then withholds 6.2% for Social Security on wages up to $184,500 in 2026 and 1.45% for Medicare on all wages with no cap.2Social Security Administration. Contribution and Benefit Base3Internal Revenue Service. Social Security and Medicare Withholding Rates Live in a state with income tax and that takes another slice. The deposit that hits your account is the net-of-taxes figure, and it can be 25% to 40% smaller than gross pay depending on your bracket and where you live.
Bonuses and Supplemental Pay
Bonuses get treated differently from regular wages for withholding. When your employer pays a bonus separately, federal rules allow a flat 22% withholding for income tax, regardless of your actual bracket. Bonuses above $1 million in a calendar year are withheld at 37%.4Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section 7: Supplemental Wages Social Security and Medicare still come out on top of that.
A $10,000 bonus withheld at the supplemental rate loses $2,200 to federal income tax, $620 to Social Security, and $145 to Medicare before any state tax. Actual net might land around $6,500. Remember that withholding is not final liability. If your marginal bracket is 12%, you may recover some of the withholding at tax time; at 32%, you may owe more.
Net of Taxes on Investment Gains
Selling stocks, real estate, or other appreciated assets triggers capital gains tax, and the rate depends on how long you held the asset. Long-term gains, on assets held more than a year, are taxed at 0%, 15%, or 20% based on taxable income. Short-term gains are taxed as ordinary income and stack onto your regular brackets. A $50,000 gain on a stock held two years might lose $7,500 at the 15% rate, netting $42,500. The same gain on a stock flipped in six months could cost $12,000 or more at a 24% bracket.
That matters for portfolio choices. The gross return on an investment doesn’t tell you what you actually kept. Anyone measuring real performance has to think in net-of-taxes terms, not headline returns.
How Deductions and Credits Change the Result
Two tools in the tax code cut what you owe, and they work in different ways. A deduction lowers your taxable income before the rate is applied. A credit reduces the tax itself, dollar for dollar, after the calculation.5Internal Revenue Service. Credits and Deductions for Individuals For net-of-taxes purposes, credits are stronger: $1,000 in credits saves you exactly $1,000, while $1,000 in deductions saves you $1,000 times your marginal rate.
The most common deduction is the standard deduction, which for 2026 is $16,100 for single filers and $32,200 for married couples filing jointly.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A single filer earning $60,000 pays income tax on only $43,900. Itemizing pays off only if your qualifying expenses, such as mortgage interest, state taxes paid, and charitable donations, add up to more than the standard amount.
Tax-Advantaged Accounts Raise Your Net
Traditional 401(k) and IRA contributions reduce your taxable income for the year you make them, which directly increases your net-of-taxes pay. The 2026 employee contribution limit for a 401(k) is $24,500.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Someone in the 22% bracket who contributes the full amount avoids $5,390 in federal income tax that year. The money is taxed later on withdrawal, but grows untaxed in the meantime.
Health Savings Accounts go further. Contributions are deductible, growth is tax-free, and withdrawals for qualified medical costs are tax-free too. For 2026, contribution limits are $4,400 with self-only coverage and $8,750 with family coverage.7Internal Revenue Service. Expanded Availability of Health Savings Accounts Under the One, Big, Beautiful Bill Act Every dollar in an HSA cuts current taxable income.
Extra Taxes at Higher Incomes
Higher earners face two additional taxes that aren’t obvious from the bracket tables. The first is the 0.9% Additional Medicare Tax on wages above $200,000 for single filers, or $250,000 for married filing jointly.8Internal Revenue Service. Questions and Answers for the Additional Medicare Tax That sits on top of the standard 1.45%, so the employee-side Medicare rate above the threshold is 2.35%.
The second is the 3.8% Net Investment Income Tax, which applies to the lesser of net investment income or the amount modified adjusted gross income exceeds $200,000 single or $250,000 joint.9Internal Revenue Service. Topic No. 559, Net Investment Income Tax It covers interest, dividends, capital gains, rental income, and royalties. A single filer with $250,000 in wages and $30,000 in investment income would owe the tax on some or all of that investment income. Neither threshold is adjusted for inflation, so more filers get pulled in each year.
Self-Employment and Estimated Taxes
If you’re self-employed or earn significant income that isn’t subject to withholding, you generally need to make quarterly estimated payments. The rule kicks in when you expect to owe at least $1,000 after subtracting withholding and refundable credits, and your withholding won’t cover at least 90% of the current-year tax or 100% of the prior year’s (110% if prior-year AGI exceeded $150,000).10Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals
The 2026 quarterly deadlines are April 15, June 15, September 15, and January 15, 2027.10Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals Missing them triggers an underpayment penalty computed as interest on the shortfall. Self-employed filers also owe both the employee and employer sides of Social Security and Medicare, a combined 15.3% on net self-employment earnings, on top of income tax. Setting money aside for only one layer is a common and expensive mistake.
Net of Taxes on Corporate Financial Statements
When a company reports “net income” on its income statement, the figure is already reduced by the federal corporate income tax, which is a flat 21% of taxable income.11Office of the Law Revision Counsel. 26 U.S. Code 11 – Tax Imposed Net income is what’s left after operating costs, interest, and taxes are pulled from revenue. Shareholders watch it because it represents profit available for dividends, buybacks, or reinvestment.
The statutory 21% rate rarely matches what a company actually pays. Deductions, credits, foreign income, and timing differences between book and tax accounting create a gap between the statutory rate and the effective rate, which is total tax expense divided by pre-tax earnings. A company might report a 15% effective rate one year and 25% the next. When comparing businesses, the effective rate is the meaningful number.
State and Local Taxes
Federal taxes are only part of the picture. Most states impose their own income tax, with rates from under 1% to over 13% depending on the state and income level. A handful of states have no individual income tax, which is why two people earning identical salaries can have meaningfully different take-home pay depending on where they live. Some cities and counties add local income taxes.
For businesses, state corporate income taxes stack onto the federal 21%. State corporate rates run from zero to roughly 11.5%, with a median near 6.5%. Six states don’t impose a traditional corporate income tax, though some of those levy gross receipts taxes instead. That’s part of why effective rates on financial statements typically exceed the federal statutory rate.
State payroll taxes can also cut your net pay. Several states require employee contributions for programs like disability insurance or paid family leave, generally running from about 0.2% to 1.3% of covered wages. Small individually, they stack. The full distance between gross salary and bank deposit reflects federal income tax, Social Security, Medicare, state income tax, and any state payroll levies, all subtracted before you see a dime.