Which statement best describes net income?

• A. Net income is take-home pay after deductions.
• B. Net income is the total earnings before deductions.
• C. Gross income includes taxes deducted from each paycheck.
• D. Net income equals gross income after only Social Security deductions.

Answer: (B)

Net income is the amount you actually take home after all deductions are subtracted from your gross earnings. Start by noting that gross income is your total earnings before any deductions. On a paycheck, these deductions can include federal and state taxes, Social Security, Medicare, health insurance, retirement contributions, and other withholdings. After subtracting all of these, what remains is your net income, also known as take-home pay.

That makes the best description: take-home pay after deductions. The other statements miss that net income is what’s left after all withholdings, not the total before deductions. Saying net income is the total earnings before deductions describes gross income, not net. Saying gross income includes taxes deducted is incorrect because gross income is defined as pre-deduction earnings. Saying net income equals gross income after only Social Security deductions ignores other withholdings and treats net as the result of a single deduction.