Gross Is Not Yours
The number in the letter is not the number in your life. Everything you decide should be built on the second one, and almost nobody calculates it before deciding.
What is deducted from a given payment depends on its type, your agreement and your state. This is not tax or legal advice. It is a checklist for building your own net figure with a professional, not a calculation you should do alone.
Someone tells you a number. You start, immediately and involuntarily, to arrange your life around it.
That number is almost never the one you keep. And the distance between the two is not a rounding error — for some kinds of money it is close to half.
This page is the list of what sits between them, so you can build the real figure before you make a single plan on the wrong one.
What comes out between the headline and you
Legal fees. Contingency arrangements are usually a percentage, and the percentage sometimes rises if the matter went further than expected. Read what you signed rather than what you remember.
Case costs, separately. Filing fees, expert witnesses, depositions, records. These are often billed in addition to the percentage and are frequently a larger number than people expect.
Liens. This is the one that blindsides people. A health insurer, a government program or a medical provider may have a right to be repaid out of a settlement for treatment they covered. This can be negotiated, often is, and must be resolved — money distributed over a valid lien is a problem that follows you.
Anything owed to someone else already. Child support arrears, tax debt, judgments. Some of these can attach directly.
Withholding, or the total absence of it. Some payments arrive with tax taken out. Many arrive with none, and the tax is still owed. Which situation you are in depends entirely on what kind of money it is.
The estimated payment nobody mentions
If money arrives without withholding, the tax on it may be due during the year in quarterly estimated payments — not in a single lump the following April.
Miss them and there are penalties. They are not enormous, and they are entirely avoidable, and finding out about them in March is a specific and unnecessary kind of awful.
There are also safe-harbour rules that can protect you based on what you paid last year. They exist, they are worth asking about by name, and how they apply to you is a CPA's answer.
Building the real number
Sit down with the paperwork and a professional and write one figure at the bottom of one page:
| Gross amount | |
|---|---|
| Less legal fees | |
| Less case costs | |
| Less liens and repayments | |
| Less tax already withheld | |
| Less tax still owed and when | |
| What I actually keep |
That last line is the only number that should appear in any conversation about what you are going to do next.
Then do the second calculation
Once you have the net figure, one more question, and it is the one that reorganises how the money feels:
What does this change about my monthly life — if anything?
For a great many women the honest answer is less than expected, and for longer than expected, and that is not a disappointment. A lump sum is not income. It does not arrive every month. The work of turning one into the other is real planning work, and doing it properly starts from knowing your floor rather than from the size of the deposit.
What this article deliberately does not do
It does not calculate anything for you, tell you what you will owe, or tell you what to do with what is left. Every line above depends on documents I cannot see.
What it does is make sure the number you plan around is the one that is actually yours.