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. Taxes Fund Public Goods and Services
Health Care for Elderly
National Defense
Social Services
Taxes are required payments of money to various levels of government.
Taxes provide revenue for public goods and services that benefit the
community and the nation as a whole.
Taxes help support goods and services such as our national defense, state and local police and protection agencies, health care, public education, financial aid for the disabled and unemployed, and social services for low-income families.
The amount of revenue raised by taxes determines the amount of
services the government can afford to provide.
State and Local Police
Public Education
Financial Aid

5. The Federal Government Dollar- Where It Comes From
Personal
Income Taxes
43%
Social Security, Medicare,
and Unemployment and other Retirement Taxes
35%
Excise, Customs, Estate, Gift, and Miscellaneous Taxes 7%
The income tax is the most significant means of raising revenue in the
federal government.
Payroll taxes, such as Social Security, Medicare, unemployment, and
other retirement taxes (FICA), account for the second largest source of
federal revenue through taxation.
Excise, estate, gift, and corporate income taxes, as well as customs,
borrowing to cover deficit, and miscellaneous taxes raise the rest of the
revenue needed by the federal government
Corporate
Income Taxes 7%
Borrowing to
Cover Deficit 8%

6. The Federal Government Dollar- Where It Goes
Social Security, Medicare, and
other Retirement
38%
Law Enforcement and General Government 3%
National Defense,
Veterans, and
Foreign Affairs
20%
Social Security, Medicare, and other retirement programs make up
the largest payout by the federal government. These programs
Provide income support for the retired and disabled and medical
care for the elderly.
National defense, veterans, and foreign affairs are another
expenditure. Money is provided to equip, modernize, and pay our armed
forces and to fund other national defense activities.
A portion of this funding is allotted for veteran’s benefits and services. About 1 percent of this money is given to foreign countries and United States embassies abroad to provide military and economic assistance and maintenance.
Social programs, such as Medicaid, food stamps, aid to families with
dependent children, health research, public health programs, assisted
housing, and social services are funded by revenue raised by taxes.
Law enforcement, general government activities (including the collection
of taxes), judicial activities, and prisons account for a small percentage
of expenditures.
Social Programs
21%
Physical, Human, and
Community Development
10%
Net Interest on
the Debt 8%

7. 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

8. 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

9. Filing Taxes (Income Tax forms)
Form  standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns.
Form 1040EZ -IRS Tax Form 1040EZ is the shortest federal individual income tax form. It is designed for taxpayers whose filing status is “single” or “married filing jointly” with no dependents.
Filing Status
Single
Married filing jointly
Married filing separately
Head of household

11. 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

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

13. 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

14. 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

15. 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

16. Family Economics & Financial Education
Reading a Paycheck

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

18. 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

19. 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

20. 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 (1.5)
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

21. Gross Pay practice Regular hours: 40 Overtime hours: 8
Regular pay rate: $5.75
Gross Pay = $299
Regular hours: 40 Overtime hours: 12
Regular pay rate: $7.50
Gross Pay = $435
Regular hours: 40 Overtime hours: 18
Regular pay rate: $9.75
Gross Pay = $653.25

22. Gross Pay Practice 4. Regular hours worked 40, Overtime hours: 12
Regular pay rate: $10
Gross Pay = $580
5. Regular hours worked 40, Overtime hours: 2
Regular pay rate: $8
Gross Pay = $344

23. Gross Pay Practice Annual Pay- $28,200 Annual Pay- $48,000
Monthly gross pay
= $2,350
Annual Pay- $48,000
Paid Bi-weekly
Gross pay per pay period
= $2000

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

25. Net Pay Practice Gross pay: $510.40 (withholdings 27%)
Deductions: $137.81
Net Pay: $372.59
2. Gross pay: $ (withholdings 22%)
Deductions: $104.62
Net Pay: $370.93

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

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

28. 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

29. 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

30. 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)
Gross Pay X (0.062) = Social Security on a pay check.

31. Medicare
Medicare
health care insurance for the elderly and disabled, poor
Based upon a percentage (1.45%) of gross income
Gross Pay X (0.0145) = Medicare on a pay check.

32. 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

33. Social Security/medicare Practice
Gross Pay = $985 Social Security 6.2%, Medicare 1.45%
Social Security = $61.07
Medicare = $14.28
2. Gross Pay = $2675 Social Security 6.2%, Medicare = 1.45%
Social Security = $165.85
Medicare = $38.79

34. 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

35. Check Amount Check Amount:
Gross pay - Deductions = Net pay (check amount)

36. Journal #3 36 hours in 1 week, Pay rate $10.50 Gross Pay = 378
hours in 2 weeks, Pay rate $9.75
Gross Pay =
4. Tell me why calculating your pay would be important for you to know in your future?

37. Practice questions 72 hours in 2 weeks, Pay Rate $8.50 Gross Pay = 612
2. Salary 56,000, paid bi-weekly
Gross Pay = 2,333.33
3. Salary 78,000, paid monthly
Gross Pay = 6,500
4. Salary 110,000, paid bi-weekly
Gross Pay = 4,583.33

38. Practice Questions 5. Salary 42,500, Paid monthly Gross Pay = 3,541.66
Gross Pay $725, Fed. Tax $41.15, State Tax $15.18, Health $ (k) $21.75
Net Pay = $521.92
7. Gross Pay $2,135, Fed. Tax $140.25, State Tax $87.24, 401(k) $106.75, Health $250
Net Pay = $

39. Practice Questions
Susan works 86 hours in 2 weeks, earning $11.50/hour. Fed. Tax $115.75, State Tax. $ Health $125. Social Security 6.2%, Medicare 1.45%, 401(k) 3%
Gross Pay = $1,023.50
Social Security = $63.46
Medicare = $14.84
401(k) = $30.71
Total Deductions = $383.90
Net Pay = $639.60