This is the video I watched to learn how to make text cut-outs in Photoshop Elements – if you’re happy to watch a video then please do, Melissa Shanhun from DigiScrapHQ is great – and she has an Aussie (I think) accent! I’m also going to give step by step instructions below.
So, in a couple of my last posts I used this effect, you can also see it on some other popular blogs like Jess Lively, which is the site that inspired me to do it.
I used Photoshop Elements to do this, but since Elements is the baby of the Photoshop family probably all other versions this will work as well.
Step 1: Start with your background image.
Step 2: Add a shape layer, any shape, color or size you want on top of your background image.
Step 3: Simplify the shape layer by right clicking on the layer and selecting Simplify.
Step 4: Add a new text layer on top of your shape layer.
Step 5: Move the text layer to the spot over your simplified shape layer in which you want the cutout to appear. Holding the CTRL button + click on the T in the text layer – this will select the text.
Step 6: In your Layers panel select your simplified shape layer & click delete – this will delete the shape of the text from the shape layer.
Step 7: Make your text layer invisible (deselecting the eye) and voila you now have a text cutout! I also like changing the opacity of this layer.
Image via Sole Society.

femi says
Thanks a lot, I found this really helpful.