From Gross to Net Income
Converting gross to net income reveals your true financial position. A $90,000 salary seems substantial, but after 18% federal tax, 5% state tax, 7.65% FICA, and $5,000 in other deductions (401k, insurance), you net about $62,000 - or 69% of gross. This 31% reduction catches many people off guard and explains why budgeting based on net income is crucial.
Tax withholding rates vary based on income level, filing status, and state. High earners face steeper rates (24-37% federal marginal), while lower earners pay less (10-12% federal). However, everyone pays the same FICA rate up to the Social Security wage base ($168,600 in 2024). This makes FICA regressive - it represents a larger percentage of total income for lower earners.
Pre-tax deductions like 401(k) contributions and HSA deposits reduce gross income for tax purposes, providing immediate tax savings. A $5,000 401(k) contribution on $90,000 income saves you $1,350-1,850 in taxes (depending on bracket), meaning it only costs you $3,150-3,650 in take-home pay. This makes pre-tax savings accounts extremely powerful wealth-building tools.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Federal tax (10-37%), state tax (0-13%), FICA (7.65%), and deductions (401k, insurance) collectively take 25-45% of gross income for most workers. Taking home 60-75% of gross is normal.
Somewhat. Move to low/no-tax state, reduce pre-tax contributions (bad for long-term wealth), adjust W-4 to withhold less (risky - may owe at tax time), or earn more to offset fixed costs (FICA cap).
Total tax paid divided by gross income. If you pay $25,000 tax on $90,000 income, effective rate is 27.8%. This is always lower than your marginal rate due to progressive taxation.
No. Nine states have no income tax: AK, FL, NV, NH, SD, TN, TX, WA, WY. This significantly increases take-home pay - $90k in Texas nets $5,000-8,000 more annually than in California.
401(k) contributions, health/dental/vision insurance premiums, HSA/FSA contributions, life insurance, disability insurance, union dues, and sometimes commuter benefits or charity donations through payroll.