Taxes & Deductions Basics

Parks, roads, streetlights, classrooms — taxes keep most of them running. A tax is everyone chipping in for public services. In Wages & Pay we met the words gross and net; here we spread the paycheck open and compute every deduction.

From gross to net on the paycheck

Say a month's gross pay is 5000, with 10% income tax and 8% social insurance:

tax: $5000 \times 10\% = 500$ ;
social insurance: $5000 \times 8\% = 400$ ;
total deductions $500 + 400 = 900$ , so take-home (net) is $5000 - 900 = 4100$ .

Take-home ÷ gross $= 4100 \div 5000 = 82\%$ — that share is the net rate. Reading a pay slip means reading four lines: gross → minus social insurance → minus income tax → net. One subtraction, done.

InteractiveTax Rate Lab

Discount %37

37% = 37/100 = 0.37 = 37/100

Picture the 100 squares as gross pay: 10% tax plus 8% social insurance takes 18 squares, leaving 82 to take home. Slide the rate and watch how fast the take-home pile changes.

Flat tax and progressive tax

Flat tax: one rate for every income — easy to compute, easy to check. Progressive tax: income is taxed in slices, and only the higher slices meet the higher rate. Say the rules are 10% on the first 3000 and 20% above that. How much tax on a gross of 5000?

Taxing by slices

First 3000 at 10%: $3000 \times 10\% = 300$ ;
the remaining 2000 at 20%: $2000 \times 20\% = 400$ ;
total $300 + 400 = 700$ , an effective rate of $700 \div 5000 = 14\%$ .

14% is far below 20% — a progressive tax bears down only on the slice that exceeds the threshold, not on the whole income.

The tax hiding in prices

Buying things, you pay tax too. An item priced at 100 with 13% VAT means paying $100 \times 1.13 = 113$ — the extra 13 is the tax. Some places quote tax-inclusive prices, others add it at checkout; read the sign before you pay. Marking up by a percentage is the same coin as Discounts & Percentages, other side up.

Check yourself

Quick quiz

1. Gross 5000, tax 10%, social insurance 8% — what is the take-home?
2. First 3000 taxed at 10%, the rest at 20% — total tax on a gross of 5000?
3. A 100 item carries 13% VAT. What do you actually pay?