US Net vs Gross Pay

The IRS has introduced inflation adjustments for 2025, aimed at preventing bracket creep and ensuring taxpayers are not unfairly pushed into higher tax brackets due to wage increases.

• Tax Brackets: The income ranges for each tax band have been adjusted. For example:
  • The 22% tax bracket will apply to earnings between $44,000 and $95,375 (up from $42,850 to $94,100 in 2024).
• Standard Deductions:
  • Single Filers: Increased from $13,850 to $14,600.
  • Married Filing Jointly: Increased from $27,700 to $29,200.

These changes mean that taxpayers will retain more of their gross income in most cases.

In 2025, 39 U.S. states will introduce updates to their tax systems, including changes to individual income tax brackets, corporate tax rates, and property tax regulations. These state-specific adjustments will affect net pay differently, depending on where you live and work. Here’s a closer look at some of the key updates across various states:

States Reducing Income Tax Rates

Several states are lowering income tax rates to provide relief to residents and boost economic competitiveness:

Colorado:

• Reducing the flat income tax rate from 4.4% to 4.25%, benefiting all taxpayers.
• This adjustment aligns with the state’s broader efforts to attract businesses and skilled professionals.

Iowa:

• Transitioning to a flat tax system at a rate of 3.9%, down from a tiered structure with rates as high as 6.5%.
• This change simplifies tax filings and reduces the burden on middle- and high-income earners.

Arizona:

• Lowering the flat tax rate to 2.5%, maintaining its position as one of the states with the lowest income taxes nationwide.

New Tax Brackets for High Earners

Some states are introducing new tax brackets targeting higher-income residents to generate additional revenue:

New York:

• Adding a new tax bracket for incomes over $1 million with a marginal rate of 10.5%, up from 10.3%.
• This change is part of an effort to address budget deficits while funding infrastructure and healthcare programmes.

California:

• Implementing a temporary surcharge for individuals earning more than $5 million annually, raising the top marginal rate to 14.3%.
• These funds are earmarked for education and climate initiatives.

States With No Income Tax

Some states, such as Texas, Florida, and Nevada, continue to operate without income taxes, providing significant advantages for residents:

Texas:

• Although it doesn’t levy state income tax, property taxes are expected to rise slightly due to increased local government spending.
• Sales tax adjustments may also affect household budgets.

Florida:

• No state income tax and stable property tax rates make it an attractive destination for workers and retirees.
• However, tourism-driven sales tax revenues remain volatile, potentially influencing future tax policies.

d. Property Tax Adjustments

Property tax rates are also changing in several states:

Illinois:

• Increasing property tax exemptions for senior citizens and veterans reduces the tax burden for these groups.

Texas:

Raising the homestead exemption from $40,000 to $50,000, offering additional relief to homeowners.

New Jersey:

• Expanding property tax rebates for low- and middle-income households under the ANCHOR programme.

New Tax Incentives and Credits

Some states are introducing or expanding tax credits to provide financial relief and incentivise specific behaviours:

Georgia:

• Increasing the Child Tax Credit from $3,000 to $4,000 per child, making it one of the most generous in the country.

Massachusetts:

• Offering a new green energy tax credit of up to $5,000 for residents who install solar panels or other renewable energy systems.

Oregon:

• Introducing a first-time homebuyer savings account tax deduction, allowing residents to save up to $10,000 tax-free for a down payment.

Corporate Tax Changes Impacting Employees

Corporate tax changes in some states could indirectly affect employees by influencing wages, benefits, and job availability:

North Carolina:

• Continuing its phased reduction of corporate income tax, dropping it to 2.5% in 2025, with plans to eliminate it by 2030.

Kansas:

• Introducing targeted tax credits for businesses that invest in local workforce training programmes, potentially benefiting employees through skill development and wage increases.

How These Changes Affect Net Pay

State tax updates for 2025 will influence net pay calculations in the following ways:

1. Lower Tax Rates: Employees in states like Iowa, Arizona, and Colorado will see higher take-home pay due to reduced income tax rates.
2. Higher Tax Rates for High Earners: Residents in states like New York and California may experience lower net pay due to higher tax brackets targeting top earners.
3. Increased Property Tax Relief: Homeowners in states such as Texas and Illinois will benefit from expanded exemptions and rebates, indirectly boosting disposable income.
4. Tax Incentives: Expanded credits and deductions will reduce tax liabilities, increasing net pay for eligible individuals.

The Social Security Administration has announced several updates for 2025:

Cost-of-Living Adjustment (COLA): Benefits will increase by 2.5%, providing additional income for retirees.

Taxable Earnings Cap:

• The maximum earnings subject to Social Security tax will increase from $160,200 in 2024 to $165,000 in 2025.
• Higher earners will pay more in contributions, impacting their net pay.

Medicare adjustments will influence take-home pay, particularly for retirees and high earners:

Medicare Part B Premiums: Rising from $174.70 to $185 per month.

• These premiums are typically deducted directly from Social Security payments, reducing net benefits for retirees.

High-Income Surcharges: Income-related surcharges will apply to individuals with higher earnings, further increasing costs.

The IRS has increased the contribution limits for retirement savings accounts in 2025, allowing individuals to save more while reducing taxable income:

401(k) Plans:

• Contribution limits rise from $22,500 to $23,000.
• Catch-up contributions for those aged 50+ increase to $7,750.

Individual Retirement Accounts (IRA):

• Contribution limits increase from $6,500 to $7,000, with a catch-up contribution limit of $1,500 for those over 50.

These increases provide opportunities to maximise retirement savings and lower taxable income.

For 2025, the estate tax exemption amount will increase to $13.99 million per individual, up from $12.92 million in 2024.

• Annual Gift Tax Exclusion: Raised to $19,000, up from $17,000 in 2024.

These adjustments allow for greater flexibility in estate planning and wealth transfer.

To make the most of your earnings in light of these changes, consider the following strategies:

1. Review Your Tax Withholdings: Update your W-4 form to ensure the correct amount is deducted from your pay, avoiding surprises at tax time.
2. Contribute to Tax-Advantaged Accounts: Maximise contributions to your 401(k), IRA, or Health Savings Account (HSA) to reduce taxable income.
3. Claim Eligible Tax Credits: Check for new or updated credits, such as the Child Tax Credit or Earned Income Tax Credit.
4. Plan for Healthcare Costs: Use a Flexible Spending Account (FSA) or HSA to manage medical expenses tax-efficiently.

Understanding how recent tax changes affect your paycheck is crucial for financial planning. Whether calculating your net income or exploring how gross pay is impacted, staying updated can help you make informed decisions. Let’s break down the key updates for 2024 that might influence your take-home pay.

At the top of your payslip, you'll typically find:

• The period for which the payslip applies (e.g., weekly, bi-weekly, or monthly).
• Your employee number is a unique identifier assigned by your employer.

This information helps you track which time frame the payslip covers and ensures that it's issued under your specific employment record.

Many companies contract with payroll service providers to handle salary processing. Your payslip will include the name and contact details of the payroll company, which is responsible for ensuring that your salary is calculated and distributed accurately.

Your leave balance (e.g., annual leave, sick days) may be included on the payslip, though not all employers provide this information. If it’s there, it shows how much time off you’ve accrued and how much remains available.

This section specifies the accounting period for which you’re being paid. For instance:

• Pay for work completed in the first half of the month might be processed and paid at the end of the month.
• It ensures alignment between the work period and the payment period.

This is one of the most critical sections of your payslip. It details how your salary has been calculated, including:

• Hours worked: The total number of hours you’ve logged for the period.
• Overtime or enhancements: Additional earnings, such as overtime pay, bonuses, or shift enhancements.
• Allowable deductions: These could include items like:
• Salary sacrifice schemes
• Childcare vouchers
• Health savings account (HSA) contributions

This part of the payslip is crucial for accuracy. Double-check that your working hours, enhancements, and deductions are reflected correctly.

This section outlines the deductions from your gross salary, such as:

• Federal tax: Based on your income and filing status.
• State tax: This varies depending on the state in which you work.
• Medicare: Standard contributions of 1.45% (plus an additional 0.9% for earnings above $200,000).
• Other deductions might include pension contributions, health insurance premiums, or union dues.

Use a salary calculator to verify that these deductions are accurate and reflect your current salary and tax rates.

This is the total amount deducted from your salary for the current pay period. It’s the sum of all individual deductions listed in point 6.

Employers are also responsible for paying certain contributions on your behalf. These might include:

• Employer’s share of FICA taxes (Social Security and Medicare).
• Contributions to company-sponsored benefit plans, such as healthcare or retirement accounts.

Although this doesn’t directly affect your net pay, it’s useful to see how much your employer is contributing.

This is the most important figure for many employees it’s your take-home pay or the amount deposited into your bank account after all deductions. Ensuring the accuracy of this amount is vital for managing your finances.

At the bottom of your payslip, you’ll typically see a year-to-date (YTD) summary, which provides an overview of:

• Total gross pay you’ve earned.
• Total deductions made so far.
• Net pay received year-to-date.

This summary helps track your annual earnings and deductions, especially as tax season approaches.

USA

• Federal Tax: Progressive tax rates range from 10% to 37%, depending on income brackets.
• State Tax: Varies by state. Some states, like Florida and Texas, have no state income tax, while others, like California, can charge up to 13.3%.
• Deductions: You can claim standard deductions (e.g., $14,600 for single filers in 2024) or itemize deductions to lower taxable income.

France

• Income Tax: Progressive tax rates range from 0% to 45%, with a tax-free allowance depending on family size and income. For example:
• 0% on income up to €10,777.
• 11% on income between €10,778-€27,478.
• 45% on income above €168,994.
• Social Contributions: Employers deduct around 20-25% of gross salary for social security, while employees pay 20-23%, covering health, unemployment, and retirement.

Key Difference: While the USA’s federal tax brackets are comparable to France’s, the social contributions in France significantly reduce net salary but provide extensive social benefits.

USA

• Social security taxes (6.2%) fund a retirement program, but benefits depend on your earnings and years of contribution.
• Healthcare is typically employer-sponsored or private, and premiums can be high.
• Unemployment benefits are limited and vary by state.

France

• Universal healthcare with extensive coverage, funded by social contributions.
• Generous unemployment benefits, offering up to 57% of your last salary for up to 24 months (or more, depending on age and contributions).
• Retirement benefits are generally higher due to mandatory contributions from both employer and employee.

Key Difference: France offers more robust social safety nets, making it ideal for those prioritising healthcare, family support, and retirement.

USA

• Standard working week: 40 hours.
• Paid leave: No federal mandate, but most employers offer 10-15 days per year.
• Public holidays: 10 days on average, depending on the state.

France

• Standard working week: 35 hours.
• Paid leave: Employees are entitled to 30 days (5 weeks) of paid leave per year by law.
• Public holidays: 11 national holidays, although some are not mandatory.

Key Difference: France offers shorter working hours and significantly more paid leave, making it appealing for work-life balance.

USA

• Housing: Can vary significantly. Cities like San Francisco and New York are expensive, while smaller towns and states like Texas offer affordable options.
• Healthcare: High out-of-pocket costs unless you have employer-sponsored insurance.
• Transportation: Car-dependent, with public transport mainly in larger cities.

France

• Housing: Cities like Paris are expensive, but smaller towns like Lyon or Nantes are more affordable.
• Healthcare: Low costs due to universal coverage.
• Transportation: Extensive public transport systems and a preference for cycling or walking in many cities.

Key Difference: While salaries may appear higher in the USA, healthcare and housing costs can reduce disposable income. France offers a lower cost of living for essentials like healthcare and public transport.

USA

• Public education is free, but quality varies by district. Private schools and college tuition are expensive.
• Limited family allowances or support.

France

• Free or highly subsidised education, including university.
• Family allowances are available for households with children, reducing the overall cost of living.

Key Difference: Families relocating to France can benefit from lower education costs and family support programs.

• In France, net salaries are lower due to higher social contributions, but these deductions fund extensive social benefits.
• In the USA, net salaries are higher, but healthcare, retirement, and other essentials may eat into disposable income.

Tax Rates:

• Research federal/state tax rates (USA) vs. income tax and social contributions (France).

Healthcare:

• In the USA, plan for private health insurance. In France, expect universal coverage.

Work-Life Balance:

• Consider the significantly higher paid leave and shorter working hours in France.

Cost of Living:

• Compare housing, transportation, and healthcare costs in the cities you’re considering.

Family Benefits:

• If you have children, consider France’s family allowances and free education.

The decision to move to the USA or France depends on your priorities. If you value a higher net salary and career growth, the USA might be the better choice. However, if you prioritise healthcare, social security, and work-life balance, France offers a compelling package, despite lower net pay. Analyse your specific situation, including lifestyle preferences and family needs, before making a move.