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

2. 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

3. 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

4. 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

5. 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

7. 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

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

9. 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

10. 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

11. Paying Employees continued
2. 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

12. Family Economics & Financial Education
Reading a Paycheck

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

14. 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

15. 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

16. 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
Anything over 40 is overtime
Example- 50 hours worked, pay rate $9.00 hr
Regular pay- $ (10 x $13.50) = Gross pay
Gross pay- $495.00

17. Gross Pay practice Regular hours: 40 Overtime hours: 8
Regular pay rate: $8.50
Gross Pay =
2. Regular hours: 40 Overtime hours: 12
Regular pay rate: $7.50
3. Regular Salary: $984 Overtime rate: $12
Worked 14 hours Overtime

18. Gross Pay Practice Annual Pay- $36,000 Annual Pay- $48,000
Monthly gross pay =
Annual Pay- $48,000
Paid twice per month
Gross pay per pay period =

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

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

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

22. 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

23. 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

24. 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)

25. Medicare
Medicare
health care insurance for the elderly and disabled, poor
Based upon a percentage (1.45%) of gross income

26. 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

27. 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

28. Check Amount Check Amount:
Gross pay- deductions = Net pay (check amount)