PAYCHECKS Personal Finance 2015

PAYING EMPLOYEES There are 3 methods employers may use to pay employees: Paycheck – payment given with a paper check with a stub attached  Most common method  Employee responsible for handling paycheck  Immediately see paycheck stub and deductions Direct Deposit – employers directly deposit paycheck into the authorized employee’s depository institution account  Employee receives pay stub detailing deductions  Most secure –no direct handling of the check  Know exactly when check will be deposited Payroll Card – payment electronically loaded on plastic card  Funds directly deposited by employer into an account linked to the payroll card  Parties involved: employer, employee, & bank  Use payroll card for ATM withdrawals or to make purchases

PAYROLL CARDS PROS & CONS  Fees Associated – depends on bank  Monthly fee  ATM fee  Inactivity fee  Fee after # of transactions  Replacement fee  Loading fee  Benefits  Employers = lower internal costs in contrast to distributing paychecks  Banks = profit from fees charged to employees, employers, & merchants  Employees = safer than carrying cash; no check cashing fees; access monthly statement; receive second card; online purchases

DEDUCTIONS & TAXES

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 U.S. tax system operates on an ongoing payment system  Taxes are immediately paid on income earned

TAXES Taxes – required charges imposed on citizens by local, state, and federal governments  Provide public goods & services  National Parks  Social Security  Medicare  Food Stamps  Military  Largest tax is on income  Other taxes – sales, excise, property, school Internal Revenue Service (IRS) – collects federal taxes, issues regulations, & enforces tax laws written by Congress

STARTING A NEW JOB To receive a paycheck, an employee must complete 2 forms W-4 –Withholding Allowance Certificate  Determines percentage of gross pay that will be held for taxes  Allowances – used to determine amount of federal taxes withheld from paycheck  Can claim personal allowances if no one else claims you as a dependent – a person who relies on a taxpayer for financial support I-9 – Employment Eligibility Verification  Used to verify eligibility of individuals to avoid hiring undocumented workers or others not eligible to work in the US  Must provide documentation establishing identity & eligibility: driver’s license, passport, Social Security Card, or birth certificate

STEPS TO COMPLETING A FORM W-4 (OPEN THE FW4) Start with the Personal Allowance Worksheet  A through H Print or type legal name on Line 1 and home address directly below the name Write Social Security number on Line 2 ( ) On Line 3, check the appropriate box to indicate marital status Enter a zero on Line 5 if not claiming any allowances Sign name and date the form before giving it to the employer Keep a copy for personal records

PAYMENT FORMS What payment option sounds the best to you? [paycheck, direct deposit, or payroll card] Why? [2 reasons]

READING A PAYCHECK

PAYCHECK STUB Document included each pay period that outlines deductions On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

PERSONAL INFORMATION –States the employee’s full name, address, and Social Security or Employee Identification number –Always check to ensure this information is correct On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

PAY PERIOD –Length of time for which wages are calculated –Most are weekly, bi-weekly, twice a month, or monthly –Last day of pay period is NOT always pay day to allow businesses to compute wages On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

GROSS PAY Total amount of money earned before deductions Multiply # hours worked X hourly rate If on salary, it is total salary divided by number of pay periods On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

NET PAY Amount of money left after deductions Take-home pay // Check Amount On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

DEDUCTIONS Amount of money subtracted from gross pay for mandatory taxes, employee-sponsored medical benefits, and/or retirement On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

CALCULATING PAY If Thomas earned $6.00 per hour and worked 15 hours this pay period, what would his gross pay be? $6.00 X 15 hours = $90.00

FEDERAL WITHHOLDING TAX Amount required by law to hold for taxes Depends on information provided on W-4 Largest deduction on gross income On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

STATE WITHHOLDING TAX Percentage deducted to assist in funding state government agencies Percentage deducted depends on gross pay On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

FEDERAL INSURANCE CONTRIBUTION ACT 12.4% of earned income must be paid into Social Security Additional 2.9% paid into Medicare You pay half of FICA & employer pays other half On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

SOCIAL SECURITY Nation’s retirement program Helps provide income for elderly & pays disability benefits Employer matches employee contribution On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $244.92$0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

MEDICARE Nation’s healthcare program Helps provide health insurance for elderly & pays disability benefits Employer matches employee contribution On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62 $0.00 $0.00 $ $ $ $244.92$0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

MEDICAL Health benefits Occurs when employer has a medical plan for employees but does not pay full coverage NOT the same as Medicare  Everyone pays for Medicare  Not everyone has medical deductions on paycheck On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $244.92$0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

RETIREMENT Retirement Plan Occurs when employer has a retirement plan for employees  You pay part  Employer pays part  Can be called a 401K NOT the same as Social Security  Everyone pays for Social Security  Not all people have retirement plans On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $244.92$0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

YEAR-TO-DATE Total deductions withheld from January 1 to last day of pay period Also totals amount of money earned per year On-The-Go Employee Beakens, Joe Employee Identification Check # 164 Check Amount $1, Employee Address 293 Michael Grove Billings, MT Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $ $40.82 $83.91 $19.62$0.00 $ $ $ $ $0.00 $0.00 Totals $250.35$1, Pay Period 6/11/2004-7/11/2004

RETIREMENT Why is it important for Thomas, who is 25 years old, to put money into a retirement plan?