What does "net pay" mean?

Net pay is the amount of a person's paycheck left over after any deductions are taken out. This commonly includes federal and state tax withholding, Social Security and Medicare taxes. In addition, any voluntary withholdings, such as the employee's share of medical insurance, reduce the net pay.

Employees can adjust their net pay somewhat by electing to take a different number of allowances for their tax withholding. Increasing allowances will reduce the amount of tax taken out with each check and may be done in order to reduce the amount of taxes refunded at the end of the year. Improperly calculating allowances can lead to tax penalties, however, so this should be done with care.