What Is Gross Pay

Gross pay is total income before deducting tax. It is summing total of regular income, overtime compensation and all taxable earnings. After deducting taxes what is left to the employee is net pay. Gross pay can be categorized into hourly gross pay and salaried gross pay. 

A salaried gross pay is calculated by dividing annual salary by the number of pay periods in that year (annual salary / no. of pay periods). The gross pay for those employees who are compensated on an hourly basis is arrived at by multiplying number of hours worked into the hourly rate at which they are hired.

People are divided into three categories on the basis of the hourly rates they are offered. White collar employees earn at the hourly rates of $14 to $34. Blue collar employees earn at the hourly rate of $12 to $23 and Service group earns at the rate of $5.5 to $11 approx. Professionals like engineers, doctors, accountants belong to white collar. Carpenters, drivers, material handlers are blue-collared employees and service class includes janitors, security guards etc.

There are a number of deductions applied to gross pay; most of them are taxes. After deducting taxes, number derived at is the take-home pay of the employee. Most countries deduct state, local or national taxes from the gross pay of the employees. Some individuals may contribute a portion of their gross pay towards funding retirement benefits.

Every individual aims at maximizing the salary for future savings. Tax saving plans helps individuals to use their hard earned money for saving for the rainy day. There are various calculators which can help the earners decide about the money they should invest for assuring secured future. Retirement calculator, inflation calculator, finance calculators are a few indicators available to plan the future wisely.

Take-home pay calculator tells about various taxes that are deducted from the gross salary to arrive at the net pay amount. Some of the taxes applicable in USA are federal income tax, Medicare tax, state income tax, social security tax, local income tax or city income tax. Income taxes can be reduced by investing in insurance plans and pension plans. Investing in closed- ended mutual funds that are mainly designed to save tax is one of the short-term investments that can save our income going plainly to the hands of revenue departments. Our single penny saved can make a difference to people who get benefit from various welfare schemes that are dependent on our taxes.

W2 form is a known document that is used to determine tax liability of an individual. It is a complete account of earnings made during financial year and deductions that can be availed as per the budget guidelines.