Payroll taxes and Paychecks Take Charge of your Finances

1.13.1.G1

© Family Economics & Financial Education – Revised March 2008 – Paychecks and Taxes Unit – Understanding Your PaycheckFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Payroll taxes and Paychecks

Take Charge of your Finances

Family Economics & Financial Education

1.13.1.G1


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

1.13.1.G1


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

1.13.1.G1


Starting a New JobTo receive a paycheck, an employee

must:– Complete a Form W-4

• Employee’s Withholding Allowance Certificate

– Complete a Form I-9• Employment Eligibility Verification

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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 paycheck– 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

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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

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W-2• Form used by employers to report

employee income • Sent to you by January 31st each year

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Paying EmployeesThree methods employers may use to

pay employees:1. Paycheck-

• Most common method• Employee responsible for handling the

paycheck• Immediately see payroll stub and

deductions

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Paying Employees continued

1. 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

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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

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Reading a Paycheck

Family Economics & Financial Education

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Assignment• Paycheck stub worksheet• Turn in assignment at end of class.

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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 6/11/2004-7/11/2004$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00

Federal WithholdingState WithholdingFed OASDI/ EE or Social SecurityFed MED/ EE or MedicareMedical401K

$1,353.33

Year-to-dateCurrentDeductionsPay Type-Gross Pay

Employee Address293 Michael GroveBillings, MT 59102

Check Amount$1,102.98

Check #164

SSN201-92-4856

EmployeeBeakens, Joe

On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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- $360.00 + (10 x $13.50) =

Gross pay• Gross pay- $495.00

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Gross Pay practice1. Regular hours: 40 Overtime hours: 8

1. Regular pay rate: $5.752. Gross Pay =

2. Regular hours: 40 Overtime hours: 12

1. Regular pay rate: $7.502. Gross Pay =

3. Regular Salary: $984 Overtime rate: $8.50

1. Worked 14 hours Overtime2. Gross Pay =

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Gross Pay Practice1. Annual Pay- $28,200

1. Monthly gross pay =2. Annual Pay- $48,000

1. Paid twice per month2. Gross pay per pay period =

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Net Pay

Net Pay– The amount of money left after all deductions

have been withheld from the gross pay earned in the pay period


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


Deductions

Deductions– The amount of money subtracted from the gross pay

earned for taxes and employee benefits.


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


Federal Withholding Tax

Federal Withholding Tax– The amount required by law for employers to withhold from earned

wages to pay taxes– Information form Form W-4


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


FICA (Federal Insurance Contribution Act)

FICA– 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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


Medicare

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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


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


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

1.13.1.G1


Check Amount

Check Amount:Gross pay- deductions = Net pay (check

amount)


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go


$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Documents

Payroll taxes and Paychecks Take Charge of your Finances