After-tax income is the amount of money a company or individual worker has after all taxes have been deducted from the company's or individual's taxable income. There are several types of taxes that can be deducted from income, including federal taxes, state taxes and withholdings. Another term for after-tax income is "after-tax income." When the term is applied to individuals rather than companies, it is sometimes referred to as "net pay".
The amount of money a person or business has in after-tax income is the amount that can be spent on current expenses and investments or put into a savings plan. This is also sometimes called "disposable income" because it can be spent at will. However, it is quite common for many people to spend most of their after-tax income on rent or mortgage, utility bills, food costs, and transportation costs, among other daily expenses.
To properly assess cash flow, it is important for individuals and businesses to consider their after-tax income, not the amount of money they earn before taxes. Without taking taxes into account, financial projections can be off by a wide margin and can lead to financial problems later on. Without considering after-tax income, spending and savings projections will include larger dollar amounts, much larger in some cases, than the amount of money the person or company will actually have on hand after tax.
There are some income deductions that are not taxed, such as deductions for health care and retirement plans. Sometimes deductions for retirement plans are taken before taxes. This means that the person will not pay taxes on the money that is invested in the retirement plan. However, the money will be taxed when withdrawn in the future. For people who have these types of deductions on their paychecks, it's important to consider their after-tax income and these types of savings deductions for the same reasons described above.
For most people, calculating after-tax income is quite easy. Many companies give their employees paychecks that include information on all deductions. Paychecks will show both pre-tax and post-tax income. In this way, the employee can project after-tax income on a monthly, quarterly, or yearly basis.