Pay and Taxes INVESTIGATE WHAT IMPACTS YOUR PAYCHECK AND PERSONAL TAXES ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 1.

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Pay and Taxes INVESTIGATE WHAT IMPACTS YOUR PAYCHECK AND PERSONAL TAXES ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 1

Primer What is the difference between gross pay and net pay? ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 2

Today’s Agenda Primer Lesson on Calculating Net Pay -PPT notes – Meet Angela – W-4 Withholding Certificate – 401k contributions Setting up Budget Challenge Accounts ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 3

Preview Today we will answer these questions: Why don’t I get all of my pay? How are payroll taxes calculated? Do I have any control over the amount of my net pay? Can you Believe? ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 4

Gross and Net Pay ____________ – is the total amount of your income from your wages and salary before payroll deductions. __________ - the income you receive after the deductions have been subtracted from your paycheck. (also called” Take-home pay”) ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 5

Payroll Deductions Amounts subtracted from gross income – Usually ______ »Federal, State, Local – Other Federal Withholdings »________ and __________ – Other Deductions »__________ accounts »________ Insurance ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 6

Social Security & Medicare Contributions Calculated as a percent of your total earned income. ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 7

Kevin’s Paycheck Kevin is a valet. How much did Kevin earn? Last month he worked 60 hours at $6.50 an hour. How does this compare with what he actually takes home? ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 8 Calculating Income Kevin’s Monthly Pay Regular Pay +Tips =Gross Pay -Payroll Taxes$ 77 -Other Deductions =Net Pay Calculating Income Kevin’s Monthly Pay Regular Pay$ 390 +Tips$ 148 =Gross Pay$ 538 -Payroll Taxes$ 77 -Other Deductions$ 21 =Net Pay$ 440

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W-4 Withholding Certificate ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 10

W-4 What it does Tells Employer how much to withhold from paycheck for federal income taxes ___________ – Marital Status – Number of dependents The _________ the Number, the _______ the Taxes Withheld (and vice versa) As a student you can claim 1 Always fill one out at the start of a job ©2012 National Endowment for Financial Education | Lesson 3-3: Pay and Taxes 11

401ks Tax-deferred Retirement Account –This means you contribute money from paycheck before taxes are calculated 12

401k: How it works ●I t is an employer sponsored tax-deferred retirement account ○Fancy way of saying it is an ___________ account ○Uses money from your pay _______ taxes are calculated ○Your employer may _______ your contribution = __________ ○You pay taxes on the distributions after the age of 59 ½ ○10 % penalty for taking money out before 59 ½ (few exceptions) ○You pay taxes on the distributions 13

Let’s do an example Let’s say you do not have a 401k and you make $50,000/year and your tax rate is 20 % Let’s say you make a contribution to your 401k of $5,000: 14 Taxable Pay$50,000 -Tax$10,000 = Net Pay$40,000 Taxable Pay $50,000 - $5,000 = $45,000 -Tax$9,000 = Net Pay$36,000

Let’s look at the difference again 15 No 401k401k Net Pay$40,000$36,000 Amount in Retirement Account $0$5,000

Let’s look at the difference again 16 No 401k401k Net Pay$40,000$36,000 Our Contribution to 401k $0$5,000 (+) Employer Match$0$2,500 Total Contributed to 401k $0$7,500 How about if you have an Employer Match? Let’s assume our employer matches half of our contribution.