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PAYCHECKS Personal Finance 2015
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PAYING EMPLOYEES There are 3 methods employers may use to pay employees: Paycheck – payment given with a paper check with a stub attached Most common method Employee responsible for handling paycheck Immediately see paycheck stub and deductions Direct Deposit – employers directly deposit paycheck into the authorized employee’s depository institution account Employee receives pay stub detailing deductions Most secure –no direct handling of the check Know exactly when check will be deposited Payroll Card – payment electronically loaded on plastic card Funds directly deposited by employer into an account linked to the payroll card Parties involved: employer, employee, & bank Use payroll card for ATM withdrawals or to make purchases
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PAYROLL CARDS PROS & CONS Fees Associated – depends on bank Monthly fee ATM fee Inactivity fee Fee after # of transactions Replacement fee Loading fee Benefits Employers = lower internal costs in contrast to distributing paychecks Banks = profit from fees charged to employees, employers, & merchants Employees = safer than carrying cash; no check cashing fees; access monthly statement; receive second card; online purchases
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DEDUCTIONS & TAXES
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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
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TAXES Taxes – required charges imposed on citizens by local, state, and federal governments Provide public goods & services National Parks Social Security Medicare Food Stamps Military Largest tax is on income Other taxes – sales, excise, property, school Internal Revenue Service (IRS) – collects federal taxes, issues regulations, & enforces tax laws written by Congress
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STARTING A NEW JOB To receive a paycheck, an employee must complete 2 forms W-4 –Withholding Allowance Certificate Determines percentage of gross pay that will be held for taxes Allowances – used to determine amount of federal taxes withheld from paycheck Can claim personal allowances if no one else claims you as a dependent – a person who relies on a taxpayer for financial support I-9 – Employment Eligibility Verification Used to verify eligibility of individuals to avoid hiring undocumented workers or others not eligible to work in the US Must provide documentation establishing identity & eligibility: driver’s license, passport, Social Security Card, or birth certificate
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STEPS TO COMPLETING A FORM W-4 (OPEN THE FW4) Start with the Personal Allowance Worksheet A through H Print or type legal name on Line 1 and home address directly below the name Write Social Security number on Line 2 (123-45-6789) 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
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PAYMENT FORMS What payment option sounds the best to you? [paycheck, direct deposit, or payroll card] Why? [2 reasons]
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READING A PAYCHECK
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PAYCHECK STUB Document included each pay period that outlines 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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PERSONAL INFORMATION –States the employee’s full name, address, and Social Security or Employee Identification number –Always check to ensure this information is correct 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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PAY PERIOD –Length of time for which wages are calculated –Most are weekly, bi-weekly, twice a month, or monthly –Last day of pay period is NOT always pay day to allow businesses to compute wages 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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GROSS PAY Total amount of money earned before deductions Multiply # hours worked X hourly rate If on salary, it is total salary divided by number of pay periods 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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NET PAY Amount of money left after deductions Take-home pay // Check Amount 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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DEDUCTIONS Amount of money subtracted from gross pay for mandatory taxes, employee-sponsored medical benefits, and/or retirement 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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CALCULATING PAY If Thomas earned $6.00 per hour and worked 15 hours this pay period, what would his gross pay be? $6.00 X 15 hours = $90.00
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FEDERAL WITHHOLDING TAX Amount required by law to hold for taxes Depends on information provided on W-4 Largest deduction on gross income 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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STATE WITHHOLDING TAX Percentage deducted to assist in funding state government agencies Percentage deducted depends on 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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FEDERAL INSURANCE CONTRIBUTION ACT 12.4% of earned income must be paid into Social Security Additional 2.9% paid into Medicare You pay half of FICA & employer pays other half 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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SOCIAL SECURITY Nation’s retirement program Helps provide income for elderly & pays disability benefits Employer matches employee contribution 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $503.46 $117.72 $636.00 $244.92$0.00 Totals $250.35$1,502.10 Pay Period 6/11/2004-7/11/2004
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MEDICARE Nation’s healthcare program Helps provide health insurance for elderly & pays disability benefits Employer matches employee contribution 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 Totals $250.35$1,502.10 Pay Period 6/11/2004-7/11/2004
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MEDICAL Health benefits Occurs when employer has a medical plan for employees but does not pay full coverage NOT the same as Medicare Everyone pays for Medicare Not everyone has medical deductions on paycheck 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $503.46 $117.72 $636.00 $244.92$0.00 Totals $250.35$1,502.10 Pay Period 6/11/2004-7/11/2004
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RETIREMENT Retirement Plan Occurs when employer has a retirement plan for employees You pay part Employer pays part Can be called a 401K NOT the same as Social Security Everyone pays for Social Security Not all people have retirement plans 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $503.46 $117.72 $636.00 $244.92$0.00 Totals $250.35$1,502.10 Pay Period 6/11/2004-7/11/2004
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YEAR-TO-DATE Total deductions withheld from January 1 to last day of pay period Also totals amount of money earned per year 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 DeductionsCurrentYear-to-date $1,353.33Federal 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 $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
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RETIREMENT Why is it important for Thomas, who is 25 years old, to put money into a retirement plan?
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