As you’re searching for the perfect caregiving job, you’ll see a range of different pay rates being offered. It’s important to understand that when a family makes a compensation offer, it does not reflect the amount of money that will ultimately go into your bank account. That’s because the IRS says household employees, like yourself, who earn $2,800 or more from a family during the course of the year must have taxes withheld from every paycheck they earn.
Here’s what you need to know to understand the difference between gross wages and net pay.
What is the difference between gross pay and net pay?
Gross wages, also called gross pay, refer to the total amount of money earned before any taxes or deductions are taken out.
Net pay, on the other hand, is the amount of money you take home after deductions, such as taxes, insurance and retirement contributions, have been subtracted from your gross pay.
“The amount of money you are offered by a family before taxes are calculated is called gross wages,” says Carolyn Livingston, director of partnerships for Care.com HomePay. “After the correct amount of taxes have been withheld, what you put in the bank is called net pay, or take-home pay.”
How can I make sure my pay is handled correctly during interviews?
Families should make you a compensation offer in terms of gross wages, but some are unfamiliar with tax and payroll processes — especially if it’s their first time hiring a household employee. Because of this, it’s a good idea to clarify that any offer represents a gross wage offer. If that is not the case, you can show the family how to use our employee paycheck calculator to translate any net pay offer into gross wages. It will also show them the amount of taxes they can expect to pay, which will help them with their budget.
Why is the difference between net pay and gross wages important?
For you as an employee, it’s important you know how much money you’ll take home each week so you can budget for all your personal expenses. Aside from that, your gross wages are used to calculate the benefits you receive if you have to file for unemployment. Additionally, the Social Security Administration uses your gross wages to calculate credits you’ll receive toward your eventual retirement benefits.
For the family, the difference matters because the IRS and tax agencies in your state require them to report the money they pay you in terms of gross wages when they file tax returns.
Next Steps:
- Learn more about the tax process you go through as a household employee.
- Download the tax forms you need to complete before you start working.
- Read about the benefits you receive by being paid legally.
