Unit 2C: Money

PaychecksMr. Elsesser

Introduction toFinancial Management

DO NOW:BRAINSTORM:

Answer this question…In what forms do people collect paychecks?

Types of Paychecks

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:

Your Paycheck MoneyIncome:

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

PayNet Pay:

The amount of money people actually receive after taxes and deductions are subtracted. Also known as NET INCOME.

Payroll DeductionsDeductions 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.

Payroll DeductionsDeductions 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.

Payroll ExemptionsRole 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.

REQUIRED FORMSSo 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.

REQUIRED FORMSSo 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.

REQUIRED FORMSEach 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.

Important Points on TaxesTaxes 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.

Important Points on TaxesIn 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.

Reexamining the Affect of Benefits on Income

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

Loans on PaychecksWhat 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.

Example of Regular Pay Check

Example of

Direct Deposi

t

Example of W4

Example of W4

(pg 2)

Example of W2

Example of

1040EZ

Your Classmates…

Your Classmates…