What Is After-Tax Income?

After-Tax Income Explained in Less Than 5 Minutes

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After-tax income is the amount of money a taxpayer has after paying taxes. You'll typically calculate this on an annual basis, but you can also do it on a paycheck-by-paycheck basis.

Key Takeaways

  • After-tax income is the amount of money you have after paying your personal taxes.
  • After-tax income can be calculated on an annual basis or on other bases, such as paycheck by paycheck.
  • Taxpayers with the same before-tax income amount often have different after-tax income depending on their personal tax burden, credits, and deductions.

How After-Tax Income Works

After-tax income, also known as "disposable income," is the amount of money you have after paying taxes—it's how much money you can spend. Most people know how much they earn, whether on a weekly, monthly, or yearly basis. However, knowing your after-tax income tells you how much of that money you actually have to spend.

Calculating after-tax income is simple. You subtract your total taxes from your total personal income. If you get a regular paycheck with tax withholding, your after-tax income is the amount you receive in each paycheck. If you pay estimated taxes throughout the year, your after-tax income is your total income minus any estimated tax payments.

After-tax income is important to individual taxpayers because it's the amount of money you have to pay your bills and, if you're able, to save and invest. But its importance doesn’t stop there. After-tax income also matters to the economy as a whole. This is because it’s also how much money you have to put back into the economy in the form of your consumer spending.


Consumer spending per household usually makes up a significant chunk of a country’s gross domestic product (GDP). It also generates a significant portion of job growth.

In fact, when a major tax proposal is made, it’s common for the Joint Committee on Taxation (JCT) to prepare an analysis of how it will affect taxpayers’ after-tax income by income bracket.

An Example of After-Tax Income

If you earn $100,000 and pay $20,000 in taxes this year, your after-tax income for the year is $80,000. This is how much you can spend on both mandatory expenses such as a mortgage or utilities, and discretionary expenses such as clothing, travel, or household goods.

Types of After-Tax Income

Although the concept of after-tax income seems straightforward, the term can be used in different ways to mean different things. These differences mostly depend on which taxes are being used to calculate your after-tax income.

After-Tax Income on a Paycheck Basis

Sometimes, after-tax income means the amount of money you have leftover after each paycheck before post-tax deductions are taken out.


Other deductions from your paycheck might include money put in an FSA toward health insurance, or into retirement accounts. The amount of money you get after both taxes and deductions is often called your “take-home pay” or “net income.”

Remember, tax withholdings on a paycheck are merely estimates of how much tax you will owe for the year. This means that the amount you get in each paycheck is not necessarily your exact after-tax income. The final amount might be lower (if you have a tax liability) or higher (if you get a tax refund) than what you're required to pay.

After-Tax Income on a Federal Income Tax Return Basis

Often, after-tax income is used when talking about your actual federal income tax liability for the year. Using the term in this sense is common when lawmakers discuss changes to major tax policies.

After-Tax Income on a Holistic Basis

Often, when people talk about after-tax income, they’re only thinking about federal taxes. This includes federal income taxes as well as Social Security taxes and Medicare taxes. Sometimes, though, after-tax income can be applied more holistically. In this case, it would also take into account other taxes, such as state and local income taxes and property taxes.

After-Tax Income vs. Before-Tax Income

In contrast to after-tax income, before-tax income is a taxpayer’s total income before taxes. Although two individuals may have the same before-tax income, they may have very different after-tax income at tax time because of filing status, deductions, and other factors.

How you earn your income can also change your after-tax income compared to someone who earns the same amount in a different way. A self-employed individual may have the same before-tax income as an employee. However, due to the different way they're taxed, their after-tax incomes could be quite different.

For example, many sole proprietors are eligible for up to a 20% qualified business income deduction. This means that a sole proprietor would pay tax on up to 20% less of their income than an employee who earns the same amount. This can lower taxes, which means a higher after-tax income.

Frequently Asked Questions (FAQs)

What is before-tax and after-tax income?

Before-tax income refers to the wages you make before taxes are taken out. After-tax income refers to your income after you pay taxes. Sometimes after-tax income is used to refer to your paycheck, and sometimes it refers to your annual income.

How is after-tax income caclulated?

Typically, after-tax income is calculated by subtracting your taxes from your income. So, if you earn $2,000 on a paycheck and you pay $200 in taxes, your after-tax income would be $1,800. Similarly, if you earned $52,000 and paid $5,200 in taxes, your after-tax income would be $46,800.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Bureau of Economic Analysis. "Disposable Personal Income."

  2. Bureau of Labor Statistics. "Consumer Spending: An Engine for U.S. Job Growth," Pages 1-2.

  3. Congressional Research Service. "Changes in After-Tax Income From the Tax Provisions in the 'Build Back Better Act'—Distributional Analysis," Page 2

  4. City of Tacoma Washington. "Are You Ready To Maximize Your Healthcare Dollars?" Page 2.

  5. Consumer Financial Protection Bureau. "How To Read a Pay Stub."

  6. PubMed.gov. "After-Tax Money Income Estimates of Households: 1984."

  7. IRS. "Tax Cuts and Jobs Act, Provision 11011 Section 199A—Qualified Business Income Deduction FAQs."

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