What Is After-Tax Income?

By Kristi Waterworth – Updated Sep 8, 2025 at 11:32 PM

Key Points

Understanding after-tax income helps plan budgets and retirement savings effectively.
After-tax income is calculated by subtracting federal and possibly state taxes from gross income.
Choosing between pre-tax and post-tax retirement contributions affects future after-tax income.

Whether you're trying to figure out your home's budget or considering what kind of retirement account to invest in, understanding after-tax income can help you make better financial decisions. Read on to learn more about it and how it affects your long-term savings goals.

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A Social Security card lying atop a W2 tax form, highlighting payroll taxes paid. — Image source: Getty Images.

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Federal Income Tax

The federal income tax is the primary source of revenue for the United States government.

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Pre-tax profit is a company's operating profit after it pays interest on debt, but before it pays taxes.

Since health insurance and 401(k) contributions are often taken out pre-tax, the equation changes when you're figuring out net income. You’ll notice that your net income is slightly more than your after-tax income minus the deductions you are making pre-tax. This is because those deductions are not taxed at all, so you’re actually paying less tax overall, too.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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