Income & Paychecks Taxes, W-4, Reading a Paycheck
Sources of Income Gifts Investments Financial Aid/Scholarships Self Employment Wages A PAYCHECK! What are the advantages/disadvantages of self-employment?
Taxes What are taxes? Charges imposed by the government that provide public goods and services What is a good or service that is paid for by taxes? Citizens pay many different types of taxes in many different ways Income tax, sales tax, property tax Largest amount of taxes is paid on income
Income Taxes Income Taxes Employers are required to take income taxes directly out of an employee s paycheck Federal and State Both Federal and State Income Tax Form W-4 Helps an employer know how much of an employee s paycheck to withhold to pay federal income taxes Allowances Amount withheld is determined by the number of allowances an employee claims on Form W-4
Allowances 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 Complete Form W-4 http://www.irs.gov/pub/irs-pdf/fw4.pdf
Form I-9 Employment Eligibility Verification Form 7.13.2.G1 Verifies that an employee is eligible to work in the work in the United States Must provide documentation which establishes identity and employment eligibility Driver s License Passport Social Security card Birth Certificate
W-2 (Wage & Tax Statement) Shows gross earnings and deductions for a calendar year and must be sent to employee by January 31 st 7.13.2.G1 http://www.irs.gov/app/understandingtaxes/hows/mod02/sim_mod02_01.jsp
What does an employee have to do before receiving a paycheck from a new job? 1. Fill out employment forms Form W-4 and Form I-9 2. Choose how to receive the paycheck (if options are available) Paper Paycheck Direct Deposit Payroll Card Which payment method would you use?
Receiving a Paycheck You will receive your first pay check after the next pay period Pay period - the length of time for which an employee s wages are calculated Weekly Twice a month Monthly
Reading a Paycheck Stub Why is it important to understand how to read a paycheck stub?
Personal Information States the employee s full name, address, and or Identification number Always check to ensure this information is correct
The total amount of money earned during a pay period before deductions
Net Income Fed OASDI/EE or Fed MED/EE or The amount of money left after all deductions have been subtracted from the gross pay earned in a pay period
Payroll Withholdings The amount of money subtracted/deducted from the gross pay earned Mandatory deductions to pay taxes Optional deductions to pay employee sponsored medical benefits, and/or retirement benefits
Federal Withholding Tax The amount required by law for employers to withhold from earned wages to pay federal income taxes Largest deduction withheld from an employee s gross income
Tax The percentage deducted to assist in funding government agencies within the state (not all states have state income tax) The percentage deducted depends on the amount of gross pay earned
FICA (Federal Insurance Contribution Act) 7.13.2.G1 This tax includes 2 taxes: & Mandatory taxes designed for the retired and disabled
Nation s retirement program, helps 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
Nation s health care program for the elderly and disabled Based upon a percentage (1.45%) of gross income
Retirement Plan Voluntary deduction--the amount an employee contributes each pay period to a retirement plan A specified percentage of the contribution is often matched by the employer
Voluntary deduction The amount taken from the employee s paycheck for employersponsored medical benefits
529 College savings plan This is an OPTIONAL deduction you can have taken from your paycheck that goes into a fund that can only be used for post high school education. The money is not taxed but must be used specifically for educational purposes.
Year-to-Date Fed OASDI/EE or Fed MED/EE or Total of all of the deductions which have been withheld from an individual s paycheck from January 1 to the last day of the pay period indicated on the paycheck stub