Question 1

What is take-home pay?

Accepted Answer

Take-home pay (also called net pay) is what you receive after federal income tax, state or provincial income tax, and payroll taxes (FICA in the US; CPP and EI in Canada) are withheld from your gross wages. Pre-tax retirement contributions like 401(k) or RRSP also reduce it.

Question 2

What taxes are withheld from a US paycheck?

Accepted Answer

US paycheck withholding includes federal income tax (based on your W-4 filing status), state income tax (varies by state — nine states have no income tax), Social Security (6.2% up to the annual wage base), and Medicare (1.45%, plus 0.9% on wages above $200,000 for single filers).

Question 3

What deductions come out of a Canadian paycheck?

Accepted Answer

Canadian payroll deductions include federal income tax, provincial income tax, Canada Pension Plan contributions (5.95% on earnings between the basic exemption and maximum pensionable earnings), and Employment Insurance premiums (1.66% on insurable earnings up to the annual maximum).

Question 4

How does a 401(k) contribution affect take-home pay?

Accepted Answer

Traditional 401(k) contributions reduce your federal and state taxable income dollar-for-dollar, so your actual take-home reduction is less than the contribution amount. For example, contributing $500/month at a 22% marginal rate only reduces your paycheck by roughly $390.

Question 5

How does an RRSP contribution affect take-home pay?

Accepted Answer

RRSP contributions reduce your federal and provincial taxable income. If you contribute through a payroll deduction arrangement, your employer can reduce withholding immediately. Otherwise you claim the deduction on your tax return and receive the savings as a refund.

Question 6

What is the difference between bi-weekly and semi-monthly pay?

Accepted Answer

Bi-weekly means paid every two weeks — 26 paychecks per year. Semi-monthly means twice a month on fixed dates — exactly 24 paychecks per year. Bi-weekly produces two extra-paycheck months each year, which many people find helpful for irregular expenses.

Question 7

Why is my effective tax rate lower than my marginal rate?

Accepted Answer

Your marginal rate applies only to the top portion of your income. Your effective rate is total tax divided by total income — it is always lower because income in lower brackets is taxed at lower rates. Only income above each threshold gets the higher rate.

Question 8

Which US states have no income tax?

Accepted Answer

As of 2025, nine states levy no state income tax: Alaska, Florida, Nevada, New Hampshire (taxes only interest and dividends), South Dakota, Tennessee, Texas, Washington, and Wyoming. Residents only owe federal income tax and FICA on their wages.

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