PAYCHECKS Personal Finance2015

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

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

DEDUCTIONS & TAXES

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

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

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

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

PAYMENT FORMS

What payment option sounds the best to you? [paycheck, direct deposit, or payroll card]

Why? [2 reasons]

READING A PAYCHECK

PAYCHECK STUB Document included each pay period that outlines deductions

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 Pay

Deductions 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

PERSONAL INFORMATION– States the employee’s full name, address,

and Social Security or Employee Identification number

– Always check to ensure this information is correctOn-The-Go

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

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 wagesOn-The-Go

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

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

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

NET PAY Amount of money left after deductions

Take-home pay // Check Amount

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 Pay

Deductions 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

DEDUCTIONS Amount of money subtracted from gross pay for mandatory taxes, employee-sponsored medical benefits, and/or retirement

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 Pay

Deductions 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

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

FEDERAL WITHHOLDING TAX

Amount required by law to hold for taxes

Depends on information provided on W-4

Largest deduction on gross incomeOn-The-Go

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

STATE WITHHOLDING TAX

Percentage deducted to assist in funding state government agencies

Percentage deducted depends on gross pay

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 Pay

Deductions 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

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

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

SOCIAL SECURITY Nation’s retirement program

Helps provide income for elderly & pays disability benefits

Employer matches employee contribution

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 Pay

Deductions 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

MEDICARE Nation’s healthcare program

Helps provide health insurance for elderly & pays disability benefits

Employer matches employee contribution

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 Pay

Deductions 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

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

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

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

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

YEAR-TO-DATE Total deductions withheld from January 1 to last day of pay period

Also totals amount of money earned per yearOn-The-Go

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

 

  Pay Type-Gross Pay

Deductions 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

RETIREMENT

Why is it important for Thomas, who is 25 years old, to put money into a retirement plan?