September 12, 2011 Objective: Students will examine optional payroll deductions

Required Payroll Deductions  CANDY! (Wait till I call on you, if I don’t call you you won’t get candy even if you have the right answer)  What are the Required Payroll Deductions?  What is a Progressive Tax?  What are the highest and lowest Federal Income tax brackets?  What type of Income tax does Nebraska have?  What are the FICA taxes?

Optional Payroll Deductions  While we want to get as much of our Gross Income in hand when we receive our Net Income (paycheck) there are many optional payroll deductions that individuals choose to have withheld from their paycheck.

Pre/Post Tax  Pre-tax deductions are deductions that can be used to discount the amount of taxable wages a person will owe taxes on.  Example: $40,000 Gross Salary - $1,000 a month for Health Insurance Premiums. Your Required Taxes are then calculated on a Gross Income of $39,000 reducing the amount of required taxes you will pay.  Post-tax deductions come out before your Net Pay, but do not affect your Gross Pay or reduce your tax burden.

Common Pre-tax Deductions:  Healthcare Expenses including: Health Insurance or Money placed into a Health Saving Account  Retirement Savings  Flexible Spending Accounts

Health Insurance Premiums  Many employers offer health insurance for their employees and family and a rate much lower than the employee could purchase health insurance on their own.  Of U.S. citizens who have health coverage, nearly 60%, secure that coverage through an employer-sponsored group health insurance plan. Why? 1.The employer typically takes responsibility for a large portion of the health care premium. In 2008, the average premium for employer- sponsored health insurance was $12,608 for family coverage, of that employees paid about $3,354 from their paycheck. 2.Open enrollment. Group plans are guaranteed issue so you can not be denied due to a pre-existing condition. 3.Options! Large groups can use their size to negotiate better benefits and plan options.

Dental/Eye Care  In addition to Health Insurance many individuals choose to add Dental or Eye Care insurance to their Medical Insurance costs to offset the cost of these services.

Life Insurance  Often times employers will offer discounted life insurance premiums that are guaranteed acceptance based on the amount of your salary.  It’s important to note employer based life insurance is only good while you are employed with that company, it terminates with your employment… why is this important?

Retirement Savings  SEP (Simplified Employee Pension), SIMPLE (Savings Incentive Match Plan for Employees), 401k, 403b, etc.  As a pre-tax deduction this reduces your income (namely your income tax) today so that you can save for future retirement  In addition your employer may match all or a percentage of the amount you contribute to help you save money for retirement faster.

Flexible Spending Accounts  Flexible spending accounts are used to withdraw pre-tax money to help pay specific bills.  Common Flex Spending Accounts include:  Health Savings Flexible Spending Accounts  Child Care Flexible Spending Accounts  Funds can be reimbursed with proof of applicable payment.  Any funds not used by the end of the year are lost.

ESOP  Employee Stock Ownership Program (ESOP)  ESOP allows employees to set aside a certain amount, pre- tax, out of every paycheck for the purpose of buying company stock. When enough money has built up to buy a share of stock the ESOP automatically purchases a share of their employer’s stock.

Conclusion  What was our objective for today?  Why would people choose to reduce their Net Pay more than they have to with optional deductions?