When you are offered any job, one of your first questions is often, “how much money will I bring home?” This is almost always different than what a family will offer you because their offer does not take into account the taxes that will be withheld from your pay each pay period.
The total amount of what you get paid every pay period (weekly, bi-weekly, semi-monthly) before taxes are withheld is your gross pay. Once taxes and any other benefits like health insurance have been deducted, the amount you can take home and put in the bank is your net pay.
“In the professional world, your pay is always negotiated based on gross wages,” says Tom Breedlove, Sr. Director of Care.com HomePay. “Nannies, senior caregivers and other household employees should follow suit and be treated like the rest of the American workforce.”
Because the topics of taxes and money can get complicated, here are answers to three common questions caregivers ask about gross and net pay.
-
Why are gross wages important when net pay is what is on my pay stub?
“It’s important to understand that all wages reported to the IRS are always reported as gross wages,” says Breedlove. “Your gross wages also determine what tax bracket you fall into for the purpose of income tax withholdings.”Your gross wages are also used to calculate how much in Social Security & Medicare (FICA) taxes should be withheld. When you retire, the amount of FICA taxes you’ve “paid” will play a big part in determining how much in retirement benefits you will earn.
-
I need my net pay be a certain amount. How can I calculate what my gross wages should be?
The easiest way to make this calculation is to use the Paycheck Calculator on the HomePay website. It can show you a sample pay stub with gross wages, taxes withheld and net pay. It will also show the amount of taxes the family will pay based on your gross wages.Be careful when “grossing up” from a net amount though. Caregivers are hourly employees, not salary, which means that your net pay calculation will assume a certain hourly rate for the number of hours you work. If your hours fluctuate, your gross wages will increase or decrease.
-
How do I figure out the taxes that are withheld from my pay?
The Social Security & Medicare taxes withheld will be 7.65% of your gross wages. You should also have federal and state income taxes withheld (if you live in a state with income taxes). The family will calculate how much federal income tax to withhold based on how you fill out a W-4. They’ll do the same with the corresponding state withholding form.
The process may seem complicated, but once you understand the differences between gross and net pay, you will be on more professional footing to ask for what you need and what you’re worth. Remember, being paid properly is the legal way. It is also for your professional benefit and your own long-term benefit to have your pay structured this way.
Your Next Steps:
* The information contained in this article should not be used for any actual caregiver relationship without the advice and guidance of a professional advisor who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.
