College and career readiness

Reading a Paycheck

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

Where is it going? Use an iPad to research what money comes out of your paycheck. Where are those taxes going? What do those deductions actually mean? What are other things that can be deducted? Medicare SIT IA Social Security Dental Insurance Health Insurance Life Insurance Other taxes you find that can be deducted.

Medicare For people who are 65 or older, certain younger people with disabilities, and people with end stage renal disease. Helps cover medical expenses for others https://www.medicare.gov/sign-up-change- plans/decide-how-to-get-medicare/whats- medicare/what-is-medicare.html

Social Security Helps older Americans, workers who become disabled, and famlies in which a spouse or parent dies. Most beneficiaries are retirees and their families. Replaces 40% of wage earners salary. http://www.ssa.gov/pubs/EN-05-10024.pdf

Federal and State Taxes Help pay for schools Road construction Social Security Medicare, Medicaid, etc. Military and defense costs Safety net programs (if you a facing a hardship)

Would you rather be paid a salary or hourly wage? Salary vs. Hourly Salary Set amount of money Not dependent on the specific number of hours worked Example: $30,000/year Hourly wage Earn a specific rate for every hour worked Example: $16.00/hour Minimum wage – Federal and state Would you rather be paid a salary or hourly wage?

Three methods employers may use to Paying Employees Three methods employers may use to pay employees: Paycheck – payment given with a paper check with a paycheck stub attached Most common method Employee responsible for handling the paycheck Immediately see paycheck 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 Payroll Card - payment electronically loaded onto a plastic card Funds are directly deposited by an employer into an account at a depository institution that is linked to the payroll card Parties involved: Employer Employee Depository institution Use the payroll card for ATM withdrawals or to make purchases

Payroll Card There are numerous fees associated with payroll cards Number of fees depends upon the depository institution Examples: Monthly or annual fee ATM fee Inactivity fee Fee after a specific number of transactions have been used Replacement fee if the card is lost, stolen , or destroyed Load fee (when funds are placed on the card account) Point of sale (POS) fee for using the card at a POS terminal, or an electronic payment processor

Benefits of Using Payroll Cards Employers Lower internal costs Costs associated with producing, handling, and distributing pay checks is eliminated Depository Institutions Profit from the fees charged to employees, employers, and merchants Employees Safer than carrying large amounts of cash Unbanked employees do not have to pay check cashing fees Americans roughly spend $8 billion annually in check cashing fees Can access electronic monthly statement of transactions Can receive a second card Give allowances to children Send money internationally Easily make online purchases

Consumer Protection with Payroll Cards Regulation E – Electronic Fund Transfer Act Protects payroll card holder from fraudulent charges on lost or stolen cards Card holder is only liable for $50 if a lost or stolen card is reported within 48 hours Over four million paychecks are stolen annually with no protection to employees Regulation E provides exceptional safety and protection for payroll cardholders

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 Internal Revenue Service (IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress

Largest required deduction Federal Income Tax Largest required deduction Amount of money earned Information on Form W-4 Amount deducted How do you benefit from paying federal income taxes?

What are optional payroll deductions? Employee benefits – products or services that add extra value for employees beyond wages earned Employee’s portion of the cost is deducted Insurance Retirement plans Flexible spending accounts Employee will typically pay much less than privately purchasing that same benefit.

Stop for Today

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 Employee’s Withholding Allowance Certificate Allowances Determines the percentage of gross pay which will be withheld for taxes Allowances Used to determine 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

Steps to Completing a Form W-4 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

Example of W4…

Example of W4…

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

Review…. In the Understanding Paycheck handout, take the time now to answer questions 1-16 to reinforce what was just learned. You will have about 10-15 minutes to record your answers before we learn how to now read a paycheck stub. What questions do you have now?

Reading a Paycheck

Paycheck Stub Paycheck Stub On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Paycheck Stub A document included each pay period which outlines paycheck deductions

Personal Information Personal Information On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 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

Pay Period On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 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 On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 changed the last sentence, it used to say “If a person is on salary, it is the total salary amount divided by the specified time period” 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 number of pay periods

Net Pay On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Net Pay The amount of money left after all deductions have been withheld from the gross pay earned in the pay period

Deductions Deductions On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Deductions The amount of money subtracted from the gross pay earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits

Federal Withholding Tax On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Federal Withholding Tax The amount required by law for employers to withhold from earned wages to pay taxes The amount of money deducted depends on the amount earned and information provided on the Form W-4 Largest deduction withheld from an employee’s gross income

State Withholding Tax State Withholding Tax On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 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) On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 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

Social Security Social Security On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Social Security Nation’s retirement program, helps 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

Medicare On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Medicare Nation’s health care program for the elderly and disabled, provides hospital and medical insurance to those who qualify Based upon a percentage (1.45%) of gross income

Medical On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 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

Retirement Plan Retirement Plan On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 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

Year-to-Date Year-to-Date On-The-Go Employee Beakens, Joe Employee Identification 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Year-to-Date Total of all of the deductions which have been withheld from an individual’s paycheck from January 1 to the last day of the pay period indicated on the paycheck stub

Paycheck Stub - Review Examples: #1 and #2 First do Example #1 with your table groups, then try to do Example #2 on your own. When everyone is finished, we will discuss them both together. What questions do you have before you begin? Remember you need to find the gross pay before you are able to find the net pay after all of the deductions!

PAYCHECK STUB #1! Answers: Julie Jones 999-88-7766 Gross Pay: $1083.33 Federal: $122.05 State: $42.27 Social Security: $67.17 Medicare: $15.71 Medical: $42.00 401K: $76.31 Total Deductions: $365.51 Net Pay: $717.82

PAYCHECK STUB #2!

Example of Paycheck Stub Year to Date: January - March

Example of Paycheck Stub Year to Date: January - March

Homework… For the rest of class…you have time to work on: Reviewing Paychecks #1-#25 Paychecks Math #1-#36