3. Actual Paychecks
Employee receives a
paycheck and a pay
stub.
Direct Deposit
Money is put directly
into your bank account.
Employee receives pay
stub.
There are 2 main types of paychecks:
4. Income:
The payment received for providing resources (labor) in the
market.
Wages:
The form that income is received.
Hourly wage
Annual Salary
Gross Pay:
The amount of money people earn per pay period before
deductions and taxes are taken out.
Hours worked x Hourly Wage = Gross Pay
Annual Salary / # of paychecks received/year = Gross Pay
Net Pay:
The amount of money people actually receive after taxes and
deductions are subtracted.
Also known as NET INCOME.
5. Deductions can be mandatory and optional:
Mandatory Deductions taken from Gross Pay:
Taxes:
Federal, State, & sometimes city/local tax.
Federal Insurance Contributions (FICA)
Social Security Tax:
Tax that funds the Social Security program, which pays
for retirement and disability benefits of Americans.
Medicare
Funds program that provides subsidized healthcare and
hospital insurance benefits to the disables and retirees.
Court Mandated:
Child support, alimony, and other garnishment payments.
6. Deductions can be mandatory and optional:
Optional Deductions taken from Gross
Pay:
Savings Plans:
Can include direct savings account deposits,
contributions to 401(k) or 403(b) retirement plans,
private retirement plans and life insurance payments.
Health Insurance
Employees often pay for a portion of the health
insurance premiums.
The employer is responsible for the other half.
Some of these benefits are not always provided to
employees who work part-time.
7. Role of Payroll Allowances:
Helps determine how much income tax must be withheld from an
employee’s paycheck.
Also known as EXEMPTIONS on tax returns.
Effect of Payroll (Withholding) Allowances:
An INCREASE in payroll allowances results in LESS
income tax being withheld and a HIGHER net pay.
A DECREASE in payroll allowances results in MORE
income tax being withheld and a LOWER net pay.
8. So how does your employer know exactly what
to take from your check?
The federal (and state) government requires you to fill out several
forms when you begin employment and annually during the year.
W4 Form:
Federal form required by the Internal Revenue Service
(IRS) that tells the employer how much income tax to
deduct from an employee’s check.
Employee completes at the time employment begins.
Based on marital status, dependent, etc.
9. So how does your employer know exactly what
to take from your check?
The federal (and state) government requires you to fill out several
forms when you begin employment and annually during the year.
W2 Form:
A form that shows a summary of a person’s earnings
and tax withholdings for an entire year.
Employers send this to each of their employees around
the end of January following the year being reported.
The (IRS) requires you to send this form to them when
filing your tax return.
10. Each year, taxpayers are required to complete
a form reporting income earned and taxes paid.
Must file by April 15th of following year.
1040EZ Form:
The simplest tax form that you can submit by yourself
to file your annual taxes with the IRS.
11. Taxes are collected on a pay as you go
principle. As people earn income, they
pay taxes as opposed to waiting till the
end of year.
People try to adjust their withholdings
so that they pay the correct amount of
taxes for each paycheck.
This way you don’t have to pay additional tax at the end
of year.
12. In order to ensure a tax refund each year, people will pay
more taxes than needed each pay period. Government
holds the money during the year and then refunds it to the
taxpayer. The taxpayer then has a lump sum of money to
purchase large items or put in savings.
Often referred to as “forced savings.”
The government does not pay interest on
overpayments. Therefore, it may be a better idea to have
the correct amount withheld rather thank overpaying—
and keep your “refund money” in a high-interest bearing
savings account throughout the year.
13. Sometimes Employers give their employees a
variety of Employment Benefits.
(Review): Monetary or Non-Monetary
Important to know what benefits will be provided by the
employer when accepting the job.
Need to use these to evaluate the offer.
Benefits like tuition reimbursement, pension contributions, health
insurance may be fully or partially paid the employer.
Most employers require employee contribution to health plans.
Non-Contributory Benefits:
Benefits that employees do not contribute to or have deducted
from pay.
Ex: Vacation and Sick Days
14. What is a Payday Loan?:
Type of short-term borrowing agreement between a lender and
individual.
Borrower writes a post-dated check to lender in the amount they wish to
borrow + a fee, in exchange for cash.
Employer will cash check on agreed upon date (sometimes next pay
day).
Also known as a Cash Advance Loan or Check Advance Loan.
Can be issued by employer, bank, credit card, or 3rd party.
Why are these taken by people?
To obtain cash when needed.
Disadvantage:
Very Expensive! Interest and fee charges are usually very
high.
