UnderstandingYourPaycheck

Methodsforpayingemployees
PaperPaycheck
Definition:issuedbyanemployertopayanemployeeforservicesrendered
Characteristics:

DirectDeposit
Definition:
theelectronictransferofapaymentdirectlyfromtheaccountofthepayertotherecipient's
account.
Characteristics:easy,doesnttakethatmuchtime

PayrollCard
Definition
:
prepaidcardthatisofferedtoemployeesasanalternativetopaperpaychecksordirectly
depositingwagesintoanemployeesdepositoryinstitutionaccount.
Characteristics:

SmartcardHavemoneyelectronicallyloadedontothemeachperiodwithfundsautomatically
deductedfromthebalancewhenapurchaseismade.
Itfunctionslikeadebitcard.

Examplesoffeeschargedbypayrollcompanies
Protection
:
RegulationE,ortheElectronictransferactallowsanyfraudulenttransactionsifreported
within48hoursyouwillonlyberesponsiblefor$50
Benefitstoemployers:
lowerinternalcostsassociatedwithproducing,handling,anddistributing
paychecksiseliminated
Benefittoemployees
:Accesstoanelectronicmonthlystatementoftransactions,optionforasecond
card,Increasedsafety(noneedtocarryaroundcash),24houraccesstofunds,Nocheckcashingfeeseach
payperiod

Taxes
Taxes
:
Compulsorychargesimposedoncitizensbyocal,state,andfederalgovernmentsusedtofund
publicgoodsandservices

InternalRevenueService
:
thegovernmentalagencyresponsibleforcollectingfederaltaxes,issuing
regulations,andenforcingtaxlawswrittenbytheUnitedStatesCongress

EmploymentForms
FormW4:

WithholdingAllowanceCertificate

Allowance
:
usedtodeterminetheamountoffederaltaxeswithheldfromthepaycheck

Dependent
:
isapersonwhoreliesonthetaxpayerforfinancialsupport

FormI9:

EmploymentVerificationFormusedtoidentifyemployeesandtoavoidundocumented
workers.

Examplesofdocumentation:
Driverslicense,passport,socialsecuritycard,andbirth
certificate

PaymentForms
Paymentoptionchoiceis:
Directdeposit,payrollcard,orpaperpaychecks

Forthesetworeasons:
Whatpublicservicesandgoodsinyourcommunityarefundedwithtaxdollars?

Postoffice
Publicschools
PoliceStation
FireDepartment
Anygovernmentjobs

Whowritestaxlaws?
TheUnitedStatesCongress

WhymayanemployeeclaimapersonalallowanceontheirFormW4?
Ifnooneelseclaimsthemasadependent.Adependentisapersonwhoreliesontaxpayersforfinancial
support.

ReadingAPaycheckStub
Paycheckstub
:apaycheckstublistthepaycheckdeductionsaswellasotherimportant
information
PersonalInformation:
Statestheemployeesfullname,address,andSocialSecurityor
EmployeeIdentificationnumber.
GrossPay:

Thetotalamountofmoneyearnedduringthepayperiodbeforedeductions
.Ifa
personearnsanhourlywage,grosspayiscalculatedbymultiplyingthenumberofhoursworked
bythewage
NetPay:
Theamountofmoneyleftafteralldeductionshavebeenwithheldfromthegrosspay
earnedduringthepayperiod.Themoneyyoutakeaway.
Deductions:
Thisistheamountofmoneythatissubtractedfromthegrosspayforothertaxes,
medicalbenefits,orretirementbenefits.
IfThomasearned$6.00perhour,andworked15hoursthispayperiod,whatwouldhisgrosspay
be?
$1,353.33

RequiredandOptionalDeductions
FederalWithholdingTax:

Theamountrequiredbylawforemployerstowithholdfromearned
wagestopaytaxes.

StateWithholdingTax:

Thepercentagedeductedfromanindividual'spaychecktoassistin
fundinggovernmentagencieswithinthestate.

FICA:
(FederalInsuranceContributionsAct)UnitedStatespayroll(oremployment)tax
imposedonbothemployeesandemployerstofundsocialsecurityandmedicare.
FedOASDI/EEorSocialSecurity:
Thenationsretirementprogram.Thistaxhelpsprovide
retirementincomeforelderlyandpaysdisabilitybenefits.SocialSecuritytaxesarebasedupona
percentage(6.2%)oftheemployee'sgrossincome.
FedMED/EEorMedicare:
Thenation'shealthcareprogramfortheelderlyanddisabled.This
taxprovideshospitalandmedicineinsurancetothosewhoqualify.
RetirementPlan:
Theamountanemployeecontributeseachpayperiodtoaretirementplan.A
specifiedpercentageofthecontributionisoftenmatchedbytheemployer.Thismaybea401k,
state,orlocalretirement.
Medical:
Theamounttakenfromtheemployeespaycheckformedicalbenefits.Thisoccurs
whentheemployerhasamedicalplanforemployees,butdoesnotpayfullcoverageforhis/her
benefits.
YeartoDate:
Totalsallofthedeductionswhichhavebeenwithheldfromanindividuals

paycheckfromllamaJanuary1tothelastofthedayperiodindicatedonthepaycheckstub.So
shegetspaideverymonth.

WhyisitimportantforThomas,whois25yearsold,toputmoneyintoaretirementplan?
Becauseifyouputmoneyintoaretirementplan,yougetthatmoneywhenyourretire.Ifhe
startsearly,thenhewillgetmoremoneywhenheretires.