Gross vs Net Pay: Do You Know the Difference

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Gross vs Net Pay: Do You Know the Difference

Nanny Filing 2015 IRS Mileage Tax Rates

This time of the year is extremely busy for families as many are hiring nannies before school begins again. Of course that also means it’s a very exciting time for many of you that are hopefully receiving job offers. But before you begin working for a new family, it’s important that the details of your employment arrangement are ironed out so everyone is on the same page from day one. And one of the most crucial things that must be discussed is your pay.

When a family makes you a compensation offer, it is critical that you are crystal clear as to what your Gross Wages and Net Pay will be. Gross Wages refers to the amount of money you earn prior to taxes being withheld while Net Pay is the amount you’ll actually take home. That’s why you’ll often hear Net Pay referred to as “take-home pay.”

Typically, employers make offers in terms of Gross Wages because it’s impossible for them to know what your Net Pay should be. This is because they don’t know exactly how much in taxes to withhold from you before you are hired and fill out the appropriate paperwork. But with that said, most families are unfamiliar with payroll and tax processes, so you should not assume anything and clarify the offer represents Gross Wages before accepting your compensation.

If the family offers you a Net Pay amount, invite them to use our Employee Paycheck Calculatorto translate it into Gross Wages. You’ll need to have filled out a Federal W-4 so the calculator can determine your federal income tax withholdings and a state withholdings form if you live in a state with income taxes.

This is extremely important for the family to do since all compensation they pay you must be reported to the government in terms of Gross Wages – and it’s the figure that will be used to calculate all your benefits and their taxes. For example, let’s say a family in Texas offers a nanny $450 a week, but it’s Net Pay. The nanny is Single with no children, so she fills out her W-4 as Single with 2 allowances. Texas has no state income tax, so she doesn’t have to worry about that (and it makes this scenario easier to calculate). Using our Employee Paycheck Calculator, the family can easily make the adjustment from Net pay to Gross Wages as follows:

Net Pay: $450.00

Social Security Tax: $33.02

Medicare Tax: $7.72

Federal Income Tax: $41.89

Gross Wages: $532.63

This calculation takes less than a minute and immediately the nanny can see what her gross wages are, what taxes are being withheld and how much she’ll take home. It’s not shown here, but the family will also see that they’ll have an additional $46.23 in employer taxes to account for each week, which helps them set their budget appropriately. The gist of all these numbers is to show you that open communication is very, very important when discussing your wages and it’s critical that it happens before you are hired. Money doesn’t have be an awkward conversation. When both you and the family are educated about the basics of payroll, it’s just a simple step in the hiring process.