Payroll taxes and Paychecks Take Charge of your Finances Family Economics & Financial Education Payroll taxes and Paychecks Take Charge of your Finances

Where Does My Money Go? Almost 31% of an individual’s paycheck is deducted Taxes are the largest expense most individuals will have Therefore, it is important to understand the systematic deductions

Taxes Taxes – Compulsory charges imposed on citizens by local, state, and federal governments. Used to provide public goods and services. Largest amount of taxes a person pays is on his/her income. Exemptions- amount you may subtract from your income for each person who depends on your income to live Children

Taxes Fund Public Goods and Services Health Care for Elderly National Defense Social Services Taxes are required payments of money to various levels of government. Taxes provide revenue for public goods and services that benefit the community and the nation as a whole. Taxes help support goods and services such as our national defense, state and local police and protection agencies, health care, public education, financial aid for the disabled and unemployed, and social services for low-income families. The amount of revenue raised by taxes determines the amount of services the government can afford to provide. State and Local Police Public Education Financial Aid

The Federal Government Dollar- Where It Comes From Personal Income Taxes 43% Social Security, Medicare, and Unemployment and other Retirement Taxes 35% Excise, Customs, Estate, Gift, and Miscellaneous Taxes 7% The income tax is the most significant means of raising revenue in the federal government. Payroll taxes, such as Social Security, Medicare, unemployment, and other retirement taxes (FICA), account for the second largest source of federal revenue through taxation. Excise, estate, gift, and corporate income taxes, as well as customs, borrowing to cover deficit, and miscellaneous taxes raise the rest of the revenue needed by the federal government Corporate Income Taxes 7% Borrowing to Cover Deficit 8%

The Federal Government Dollar- Where It Goes Social Security, Medicare, and other Retirement 38% Law Enforcement and General Government 3% National Defense, Veterans, and Foreign Affairs 20% Social Security, Medicare, and other retirement programs make up the largest payout by the federal government. These programs Provide income support for the retired and disabled and medical care for the elderly. National defense, veterans, and foreign affairs are another expenditure. Money is provided to equip, modernize, and pay our armed forces and to fund other national defense activities. A portion of this funding is allotted for veteran’s benefits and services. About 1 percent of this money is given to foreign countries and United States embassies abroad to provide military and economic assistance and maintenance. Social programs, such as Medicaid, food stamps, aid to families with dependent children, health research, public health programs, assisted housing, and social services are funded by revenue raised by taxes. Law enforcement, general government activities (including the collection of taxes), judicial activities, and prisons account for a small percentage of expenditures. Social Programs 21% Physical, Human, and Community Development 10% Net Interest on the Debt 8%

Starting a New Job To receive a paycheck, an employee must: Complete a Form W-4 Employee’s Withholding Allowance Certificate Complete a Form I-9 Employment Eligibility Verification

Form W-4 Determines the percentage of gross pay which will be withheld for income taxes Allowances Reduces the amount of federal taxes withheld from the pay check A person may claim a personal allowance if no one else claims the person as a dependent Dependent – a person who relies on the taxpayer for financial support (Under age 24 if full-time student. 19 Otherwise) 2014 Tax Return: Dependents save you $3,950

Filing Taxes (Income Tax forms) Form 1040 -  standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns. Form 1040EZ -IRS Tax Form 1040EZ is the shortest federal individual income tax form. It is designed for taxpayers whose filing status is “single” or “married filing jointly” with no dependents. Filing Status Single Married filing jointly Married filing separately Head of household

Form I-9 Employment Eligibility Verification Form Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United States Must provide documentation which establishes identity and employment eligibility Examples include driver’s license, passport, Social Security card, and birth certificate

W-2 Form used by employers to report employee income Sent to you by January 31st each year

Three methods employers may use to Paying Employees Three methods employers may use to pay employees: Paycheck- Most common method Employee responsible for handling the paycheck Immediately see payroll stub and deductions

Paying Employees continued Direct Deposit- Employers directly deposit employee’s paycheck into the authorized employee’s depository institution account Employee receives the paycheck stub detailing the paycheck deductions Most secure because there is no direct handling of the check Employee knows exactly when paycheck will be deposited and available

Paying Employees continued 3. Payroll Card- A payroll card electronically carries the balance of the employee’s net pay Funds are directly deposited by an employer into an account at a depository institution that is linked to the payroll card Use the payroll card for ATM withdrawals or to make purchases

Family Economics & Financial Education Reading a Paycheck

Personal Information Personal Information States the employee’s full name, address, and Social Security number Always check to ensure this information is correct

Pay Period Pay Period The length of time for which an employee’s wages are calculated; most are weekly, bi- weekly, twice a month, or monthly The last day of the pay period is not always payday to allow a business to accurately compute wages

Gross Pay Gross Pay The total amount of money earned during a pay period before deductions This is calculated by multiplying the number of hours worked by the hourly rate If a person is on salary, it is the total salary amount divided by the specified time period

Gross Pay 40 hours is regular pay for one week Example- 40 hours worked, pay rate $9.00 hr Gross Pay- $360.00 Overtime pay is time and one half (1.5) Anything over 40 is overtime Example- 50 hours worked, pay rate $9.00 hr Regular pay- $360.00 + (10 x $13.50) = Gross pay Gross pay- $495.00

Gross Pay practice Regular hours: 40 Overtime hours: 8 Regular pay rate: $5.75 Gross Pay = $299 Regular hours: 40 Overtime hours: 12 Regular pay rate: $7.50 Gross Pay = $435 Regular hours: 40 Overtime hours: 18 Regular pay rate: $9.75 Gross Pay = $653.25

Gross Pay Practice 4. Regular hours worked 40, Overtime hours: 12 Regular pay rate: $10 Gross Pay = $580 5. Regular hours worked 40, Overtime hours: 2 Regular pay rate: $8 Gross Pay = $344

Gross Pay Practice Annual Pay- $28,200 Annual Pay- $48,000 Monthly gross pay = $2,350 Annual Pay- $48,000 Paid Bi-weekly Gross pay per pay period = $2000

Net Pay Net Pay The amount of money left after all deductions have been withheld from the gross pay earned in the pay period

Net Pay Practice Gross pay: $510.40 (withholdings 27%) Deductions: $137.81 Net Pay: $372.59 2. Gross pay: $475.55 (withholdings 22%) Deductions: $104.62 Net Pay: $370.93

Deductions Deductions The amount of money subtracted from the gross pay earned for taxes and employee benefits.

Federal Withholding Tax The amount required by law for employers to withhold from earned wages to pay taxes Information form Form W-4

State Withholding Tax State Withholding Tax The percentage deducted from an individual’s paycheck to assist in funding government agencies within the state The percentage deducted depends on the amount of gross pay earned

FICA (Federal Insurance Contribution Act) This tax includes two separate taxes: Fed OASDI/EE or Social Security and Fed MED/EE or Medicare These two taxes can be combined as one line item or itemized separately on a paycheck stub

Social Security Social Security provide retirement income for elderly and pays disability benefits Based upon a percentage (6.2%) of gross income, employer matches the contribution made by the employee (can begin to collect benefits at age 62) Gross Pay X (0.062) = Social Security on a pay check.

Medicare Medicare health care insurance for the elderly and disabled, poor Based upon a percentage (1.45%) of gross income Gross Pay X (0.0145) = Medicare on a pay check.

Medical Medical The amount taken from the employee’s paycheck for medical benefits Occurs when the employer has a medical plan for employees but does not pay full coverage for his/her benefits

Social Security/medicare Practice Gross Pay = $985 Social Security 6.2%, Medicare 1.45% Social Security = $61.07 Medicare = $14.28 2. Gross Pay = $2675 Social Security 6.2%, Medicare = 1.45% Social Security = $165.85 Medicare = $38.79

Retirement Plan Retirement Plan The amount an employee contributes each pay period to a retirement plan A specified percentage of the contribution is often matched by the employer May be a 401K, a state, or local retirement plan

Check Amount Check Amount: Gross pay - Deductions = Net pay (check amount)

Journal #3 36 hours in 1 week, Pay rate $10.50 Gross Pay = 378 3. 100 hours in 2 weeks, Pay rate $9.75 Gross Pay = 1072.50 4. Tell me why calculating your pay would be important for you to know in your future?

Practice questions 72 hours in 2 weeks, Pay Rate $8.50 Gross Pay = 612 2. Salary 56,000, paid bi-weekly Gross Pay = 2,333.33 3. Salary 78,000, paid monthly Gross Pay = 6,500 4. Salary 110,000, paid bi-weekly Gross Pay = 4,583.33

Practice Questions 5. Salary 42,500, Paid monthly Gross Pay = 3,541.66 Gross Pay $725, Fed. Tax $41.15, State Tax $15.18, Health $125. 401(k) $21.75 Net Pay = $521.92 7. Gross Pay $2,135, Fed. Tax $140.25, State Tax $87.24, 401(k) $106.75, Health $250 Net Pay = $1550.76

Practice Questions Susan works 86 hours in 2 weeks, earning $11.50/hour. Fed. Tax $115.75, State Tax. $34.13. Health $125. Social Security 6.2%, Medicare 1.45%, 401(k) 3% Gross Pay = $1,023.50 Social Security = $63.46 Medicare = $14.84 401(k) = $30.71 Total Deductions = $383.90 Net Pay = $639.60