Ask HN: Salary discussions – numbers are before or after taxes?
Every time I'm reading discussion on salaries I'm not really sure what number people are actually talking about.
Is it net or gross? Before or after income taxes? Gross = before expenses/taxes.
Net = after (which, specifically, depends on the context). Always negotiate your compensation in gross. Always negotiate hourly in hours, salary in years or months (most places prefer the former, but depending on your country it might be customary to discuss in the latter). A multiplication/division by 12 is usually sufficient. Hourly pay means you work time, you get paid for exactly that time (give or take 15 minutes sometimes, usually it's rounded, often up to the next hour). Payments usually made every two weeks or every month. Salaries are paid at a fixed frequency, usually monthly - sometimes, in very very rare cases, semiannually or even annually. Don't bother asking for a different pay schedule as it's generally company-wide and very difficult to change, and it also shouldn't affect you if you manage your own money correctly - the amount of money you make on average over time remains the same. The reason for gross is, as you mention, taxes. Your specific situation affects how much you contribute to your community/country (via taxes), and the percentage/amount usually changes over time as your living situation changes (you get married, have children, get a raise, etc). Your employer can't possibly know all of this in most cases (namely in the US, but also elsewhere) and also it's not their burden to manage your taxes (again, usually - namely in the US). Your job is "I do services, you pay me for those services". The company needs to know how much they're paying for your services. How that income breaks down for you is your own deal. Imagine a case where you're in a high tax bracket because you have a lot of successful side gigs. Your employer, paying net, would thus have to pay you more in order to keep the rate competitive for you, simply because you make more elsewhere. The employer loses out pretty heavily in this case. Just doesn't make much sense to do it that way. Yes, and to build on your comment regarding the employer's lack of knowledge and control over taxes: Equity comp also means the employee has control over when they get compensated. Maybe the employee will sell equity as it vests, maybe they'll keep it and sell it all ten years later. These choices will all drastically change the tax situation. A good employer will work with you as a team to help you realize your financial strategy. > Equity comp also means the employee has control over when they get compensated. I wish that were a universal truth, but it decidedly does not apply to RSUs which most equity compensation comes in the form of. > which most equity compensation comes in the form of. * location depending. This is certainly the case today in some places, but has not been the norm in most places (unfortunately). The control is somewhat reduced, but not entirely. While the employee is forced to pay tax at vest, they can still retain the RSU and sell later. That's the exact same thing as getting a salary and buying stock with it. Yes though equity is a whole different discussion :D I wouldn't be comfortable making recommendations there since the world of equity is big and hairy and it's hard to give generic advice that isn't harmful in some situations. In France (and broadly speaking, in Europe) you are better off negotiating net before taxes. We have plenty of deductions from our gross that are compulsory, before getting to the net before taxes. It means that the x€ you hear is actually x€*0.6 or less. Bringing the number down to what actually hits your taxes (and then your bank account) makes the proposal look less grandiose. It's actually just the same in the US - my net salary is exactly 0.6 my gross salary. I've never heard of anyone negotiate by net here, but they should - it would probably be very difficult though. This is before taxes. We have gross minus "various debits for retirement, health care, etc" (fixed, a percentage of the gross) and then minus income taxes (that vary from person to person) Except there are a lot of ways to change what is taxable in the US: 401h, HSA, FSA, etc. This is before taxes. We have gross minus "various debits for retirement, health care, etc" (fixed, a percentage of the gross) and then minus income taxes (that vary from person to person) Yes, it works very similarly in the US. You have your gross salary - let's say, 100k. From that, before taxes, is deducted the employee health insurance premiums (may be $0 to ~10k), employee retirement contributions (up to 19k), perhaps health savings account contributions (up to 7k), and possibly some others. Obviously, these can be quite substantial! But, at least, some of them are "optional" in that you are, for example, free to underfund your 401(k). After that, federal and state income taxes are taken out, and a special tax for Medicare and Social Security. Many of these are impacted by the vagaries of each employer. If you know your pre-tax income, you can easily calculate your taxes. But figuring out what your pre-tax income will be is not something you can figure out from the headline gross number. The biggest factor is the employer health insurance plans and your expected premium contribution - getting this out of an employer before being hired is like pulling teeth. Although HSA and 401(k) contributions are elective, so you'd think you could determine that ahead of time...well, if the employer doesn't have a HDHP, then you don't get an HSA at all. Conversely, if they do, the amount of the deductible and the amount of the possible employer contribution (which counts toward the maximum allowable contribution by the IRS) factor into how much you expect to come out of your pay check. This is also tough info to get out ahead of time. 401(k) contributions fall into a similar but less severe problem - there's often an employer contribution, but it counts toward the allowed maximum, so you cannot determine from your gross salary alone how much you will be contributing toward your 401(k), even if you know ahead of time the dollar amount you want to contribute. Employers are often a little better about telling you their 401(k) contribution benefits ahead of hiring, though. Thanks for the details. In our case it is easier. You have the gross that is the usual negotiating point because the number sounds larger. Then there are compulsory deductions (national, the amount decided by the law). They cover health insurance, disability, retirement, ... The amount deducted from your salary is also (for the most part) paid by the employer (same amount). To this may be added extra money, again regulated by the law which is a percentage of your "gross before taxes" (above) - this is dependent on the size of the company, inflation, etc. (intéressement et participation) We are now at "gross before income taxes". These taxes change between people (married, children, some specific renovations in your house, ...) but for the vast, vast majority of people (probably 95%) they are pre-calculated and you go to the national tax site, click next a few times and you are done (literally 3 minutes). The taxes themselves are deducted by your employer. So what you get in your bank account is really a net amount you can spend. It is substantially smaller than the gross (about 50% I guess) and it would make much more sense to negotiate on that one because thi sis what you can actually spend. Also, its super easy to calc your annual based on hours: just double the hourly rate and thats what you generally gross per year, i.e. $16/hour is ~32,000 per year. So if you ever wonder, take your $160,000 per year and you are making $80 per hour... so your complaints about salary will diminish. If you're doing that for salary->hourly rate make sure you're honest about how many hours you actually work, that math only works for 40h/week, if you're working 50, 60, or 80 hour weeks adjust accordingly. Double the hourly rate and then add three zeros to the end (to multiply by 1000). Or if you want just 1 step, multiply by 2000. TIL, neat trick! Always pre tax. Everything depends on the person. For example the same 2 people can make exactly the same, but live in 2 different states. And with state income tax is varying from 10% all the way down to 0%, this choice of locale can make a big difference It's not just state income tax making a big difference, it's also health insurance! The employee contribution towards health insurance premiums has IME ranged from $0 to $10k. So even in the same state, two different employers paying the same gross salary could mean very different net salaries. Unfortunately, it's also a big pain in my experience to get companies to disclose this information before hiring. Even so-called good health insurance can often have massive gaps. I'm exceptionally fortunate in that I make enough money to just pay out of pocket, if I was poor or even just working class I wouldn't be able to say drop $100 or so on an Uber ride to and out of the way doctor. I'd be skipping medicine when I can't make my co-pays, which for my extremely treatable conditions would make things much much worse. If I had one wish it would be to decouple healthcare from employment. No one should have a nightmare scenario where they get fired on Wednesday and next week can't afford their wife's heart medicine. I know in Estonia, it is always after taxes, since tax laws are sufficiently simple that people pay the same percentage. In Denmark it's always pre-tax, because tax laws are so complicated that not even the tax authority knows how much you'll end up paying, and so we have an "adjustment" after the fact where you'll either get to pay an amount more, or get an amount back.. It's hilariously sad. I’m surprised to hear that Denmark has such a complex tax system. That seems like something the US/UK would have so they can place infinite carve outs for special interest groups. We have progressive tax (which is complicated in itself, as you pay different rates on each paycheck, so, the first N amount, you pay 0% (bit it's not called that, ofc), then up to the next N, you pay some other percentage, and of the money after that N up to the next, you pay yet another percentage). Then we have for some reason, chosen to subsidize banks, by letting people not pay tax on the percentage of money they pay to the bank that constitutes the interest. Then there are a million other factors that might influence it.. On top of that, you're not actually only taxed for the amount of money you earn in a year, you're taxed by the amount of money you thought, last year, that you were going to earn this year.. and there's more, that I am ignorant about, because I just.. accept that it's a black box and either receive or pay the money they ask at the end of the tax year. In fact the UK has something like that because of progressive taxation. The idea is that a tax system should be "progressive", meaning people who earn a high income should pay a higher percentage of their income in tax, and conversely people who earn very little should pay a low, zero or even negative percentage. Now imagine you work for two employers overlapping in time. E.g. one job in the daytimes and another in the evenings. Your employers don't know about each other, so your total earnings before tax will not be known by either employer, but you should pay a higher percentage of tax due to your higher total income. So the state has to be involved in the calculation. People quote pre-tax salaries. The after-tax salary depends not only on the taxing jurisdiction but on the spouse's income if any, since that affects the marginal tax bracket. > The after-tax salary depends [...] on the spouse's income This is not true, in some countries. In the US it is true. As another commenter pointed out this is a US based site and I would always assume it’s pretax salary. Even the Europeans who mention salaries will usually clarify if it is post tax. My comment was about: In some countries your after-tax salary does not depend on your spouse. In those countries, people are taxed as individuals, not as a family unit. Unless you are married and file taxes separately. Another reason why salaries are referred to in pre-tax terms. Also deductions for kids can apply, all kinds of circumstances. In Germany you negotiate the "gross" salary. But certain mandatory insurance payments (healthcare, unemployment, retirement, nursing) are split between employee (subtracted from gross) and employer (added to gross). So the direct cost to the employer is about 20% higher than the "gross" salary. That's true in the US as well. Not always. At a college I worked at the contributions by the school to our health insurance cost was added to employees paychecks as a line item, then the amount of health insurance paid by the employee (a small percentage) subtracted, so the gross salary basically included most of but not all of the schools health contribution. This meant the employee ended up paying some taxes on the schools health contribution I believe. Every other employer I worked for did not show company health insurance contributions on the paycheck stub at all. Maybe this has changed recently (last 20 years?) because applicable laws have changed, or perhaps it only applies to nonprofits or schools? This had the advantage to the school that employees knew how much of a health benefit they were receiving, employees paychecks looked bigger (until you got to the take home part), and the school paid less taxes (not sure how, but that was the main reason they did it). It was basically an accounting trick to shift costs to employees, similar to the old trick of giving raises that match inflation; so employees think they are getting raises, and even if they notice the raise only matches inflation (difficult to tell if the business year doesn't match the physical year since official inflation figures for the entire year won't be published till later), what they don't realize is the raise only happens once a year so they are losing to inflation the rest of the year. A very sneaky way to take money away from employees and reduce company costs. I suspect this is part of how USA wages have been held flat for decades. I'm sure there's an edge case for everything, but 99.99% of the time in the US a quoted salary does not include employer-paid benefits, their part of SS, etc. Whenever after-tax income is discussed, I've seen it clarified as "take-home". If that's not mentioned, then assume salary is gross. This isn't a US-centric thing -- I've never heard of anyone discussing after-tax income as "salary" in the UK, for example. Always before, but you should also factor in local taxes and cost of living yourself when evaluating an offer. > Always before, but you should also factor in local taxes and cost of living yourself when evaluating an offer. I'd also like to stress that, along with taxes, there are also tax benefits in play, which are highly dependent on your personal circumstances and willingness to pursue them, and can also have a limited timespan. For instance, some European countries offer generous tax benefits to highly skilled professionals willing to relocate which are only applicable for a few years and require the employee to jump through a few hurdles to benefit from them. If we leave it to recruiters to do the tax math, unscrupulous recruiter might use that to create inflated expectations regarding net salary and disposable income. Taxes are too variable from person to person, so when I talk salary, I talk gross, and in my head I know about what my tax rate will be and I figure accordingly. Generally before tax, especially in the context of annual salary. When talking about post-tax pay (“take home pay”) the convention in my country at least is to express that in weekly or fortnightly terms. For salary in my country (Australia) though, the figure usually doesn’t include superannuation (payments into a kind of third party pension fund) which is applied on top (legislated as a compulsory 10% on top of the wage). Salary discussions are before taxes because your tax situation is highly personal in the US. I just ran some numbers An unmarried person making $150,000 In San Francisco would pay $37,816 in taxes for a net income of $112,184. If that same person was married with a non-working spouse the same person would pay only $29,836 in taxes for a net income of $120,164. This person could also legally reduce their tax burden by contributing to retirement accounts. Let's take the married San Franciscan if they maxed out their 401k contributions they'd pay $25,546 in taxes for a net income of $124,454. If they moved to Texas then they'd pay $25,546 in taxes, or a net of $124,454 Those are just no frills situations with standard deduction, employees can have itemized deductions that reduce their tax burden more. Calculations come from https://smartasset.com/taxes/income-taxes Here, it'll almost always be pre-tax; it's primarily a US-oriented site, and the US has a very complex personal tax regime (in particular, many, many common deductions) where two people with the same pre-tax income might commonly have a very different post-tax income. In the US it's always pre tax and generally annual whereas in Europe it's often post tax and monthly in many cases. I respect the European model but the US model is not going away since taxes are situation dependent and culturally folks have a different attitude about taxes In Spain, gross is pre-tax and pre-social security (health, unemployement and retirement) but only for the employee side. The employer needs to pay an additional 25-30% on top of the gross salary for social security benefits but that amount is not included in the gross salary figure. I am an American so I am used to gross. But I am working in the Balkans and I’ve learned that net salary is more commonly discussed here. In Switzerland you would only discuss pre-taxes (gross) salaries, (also) because there's an arcane tax system muddling things up. Gross, always before taxes in Canada at least. Taxes vary by province, less confusing to not include any deductions. Always pre-tax. (Gross) There's far too many tax variables to discuss salaries at net level. It’s before taxes and it’s typically total comp: base + bonus + equity In Sweden: Pre-tax.