Definition
Net income is the amount of money remaining after all deductions, taxes, and expenses have been subtracted from gross income. For individuals, this is take-home pay—the amount actually received in a paycheck or bank account after federal and state taxes, Social Security, Medicare, health insurance premiums, retirement contributions, and other deductions. For businesses, net income is total revenue minus all expenses including operating costs, interest, and taxes.
Formula
For individuals: Gross Income - Taxes - Insurance - Retirement Contributions - Other Deductions. For businesses: Total Revenue - Cost of Goods Sold - Operating Expenses - Interest - Taxes.
Example
Individual Net Income Example
If your gross income is $5,000 per month and your deductions include $800 for federal taxes, $200 for state taxes, $310 for Social Security, $73 for Medicare, $300 for health insurance, and $200 for 401(k) contributions, your net income would be $3,117. This is the amount you actually have available to spend or save.