understanding your paycheck_essentials_powerpoint_7.13.2.g1

7.13.2.G1

© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 1Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

What do you feel is the best part of beginning a new job?

There are many different answers to this question:

• Self satisfaction• Learning new skills• Change in routineHowever, many people will believe it is the PAYCHECK received from

that job!

7.13.2.G1

Understanding Your Paycheck Essentials

Family Economics & Financial Education

The Essentials to Take Charge of Your Finances

7.13.2.G1


What does an employee have to do before receiving a

paycheck from a new job?

1.

•Fill out employment forms•Fo

rm W-4 and Form I-9

2.

•Choose how to receive the paycheck (if options are available)

7.13.2.G1


Form W-4Employee’s Withholding Allowance Certificate

Determines the percentage of an employee’s pay that will be

withheld for federal income taxes

What are taxes?

Taxes- Compulsory charges imposed on citizens by local,

state, and federal governments

7.13.2.G1


Provide public goods and services

Taxes

What is an item or service that you use every day 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

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Income TaxesIncome TaxesEmployers are

required to take income taxes

directly out of an employee’s paycheck

Federal and StateBoth Federal and State Income Tax

Form W-4Lets an employer

know how much of an employee’s paycheck to

withhold to pay federal income

taxes

AllowancesAmount withheld is determined by the

number of allowances an

employee claims on Form W-4

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Allowances

• Used to determine the amount of federal taxes withheld from the paycheck

• 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 supportNumber of allowances claimed on

W-4

Amount of income

Amount of federal

income tax withheld

from paycheck

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Form I-9Employment Eligibility Verification Form

Verifies the eligibility of individuals to avoid hiring undocumented workers or others who are not

eligible to work in the United StatesMust provide documentation which establishes identity and employment

eligibility

Driver’s License Passport

Social Security

card

Birth Certificat

e

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What are methods employers can use to pay

employees?Will discuss the following methods:1. Paper Paycheck2. Direct Deposit3. Payroll Card

An employer may offer only one or all of these payment options to

their employees.

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What is a Paper Paycheck?

Paper Paycheck – payment given with a paper check with a paycheck stub

attachedPaycheck stub – lists important

information about the paycheck and outlines the deductions made• Least secure

Employee is completely responsible for paycheck

Increased chance of the paycheck getting lost

• The cost for employers to print paychecks is greater compared to direct deposit

• Most common• Employee may

choose what action to do with the paycheck

• Deductions are clearly identified on the paycheck stub attached

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What is Direct Deposit?

Direct Deposit - employers directly deposit employee’s paycheck into the

authorized employee’s depository institution account

• Employees must use a depository institution for this method to be available

• Increased security and convenience for employee

• Employee knows exactly when paycheck will be deposited

• Employee can view their paycheck stub to see what deductions have been taken

– Employee receives a paycheck stub

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What is a Payroll Card?

Payroll Card - payment electronically loaded onto a plastic

card– Funds are automatically deducted from the

balance of a payroll card when a purchase is made

– Can be used for ATM withdrawals or to make purchases

– Employee will receive some type of paycheck stub (may be electronic)

– There can be numerous fees associated with payroll cards

• Employees must be careful of fees charged by payroll cards

• Safer than carrying large amount of cash

• Can review paycheck stub

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Receiving a Paycheck

Will receive payment after the next pay period

Pay period - the length of time for which an employee’s wages are calculated

Weekly Bi-weekly

Twice a month Monthly

Which payment method would work best for you?

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Reading a Paycheck Stub

On-The-Go

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

Pay Type-Gross Income

Payroll Withholdings Current Year-to-date

$1,353.33 Federal WithholdingState WithholdingFed OASDI/EE or Social SecurityFed MED/EE or MedicareMedical401K

$106.00$40.82$83.91$19.62$0.00$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

Why is it important to understand how to read a

paycheck stub?

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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



Check #164






$106.00$40.82$83.91$19.62$0.00$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

–The last day of the pay period is not always payday to allow a business to accurately compute wages

On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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 Income

–The total amount of money earned during a pay period before deductions

On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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 Income

–The amount of money left after all deductions have been withheld from the gross pay earned in the pay period

On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

7.13.2.G1


Payroll Withholdings

– The amount of money subtracted or deducted from the gross pay earned – Mandatory deductions to pay taxes– Optional deductions to pay employee sponsored

medical benefits, and/or retirement benefits

On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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 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

On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

– The percentage deducted from an individual’s paycheck 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

On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

7.13.2.G1


On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

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

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On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

Social Security

– 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

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On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

Medicare

– Nation’s health care program for the elderly and disabled, provides hospital and medical insurance to those who qualify

– Based upon a percentage (1.45%) of gross income

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On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

Retirement Plan

– Optional 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

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On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

Medical

– Optional deduction– The amount taken from the employee’s

paycheck for employer-sponsored medical benefits

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On-The-Go



Check #164






$106.00$40.82$83.91$19.62$0.00$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

Year-to-Date

– 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

7.13.2.G1


Summary

Fill out employment forms

Form W-4• Determines

Federal Income Tax withheld

Form I-9• Employmen

t eligibility

Determine method to receive paycheck

Examine advantages and disadvantages of each method offered to determine best method for you

Receive paycheck

After next pay period

Check the paycheck stubMake sure you have been paid the correct amount

What is the process to obtain a paycheck?

understanding your paycheck_essentials_powerpoint_7.13.2.g1

Economy & Finance

paycheck paycheck

paycheck essentials

paycheck stub

charge america

norton school of family

paper paycheck payment

consumer sciences

federal taxes