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Income - Head Matters


1. What Affects Income

b. How can you increase the money you bring home (continued)

Identify and list typical deductions from a paycheck
What we take home is less than the gross amount we earn.  The difference is the amount that is deducted from our paycheck – the payroll deductions.  Let’s say you have a job making pizzas.  You earn $7 an hour and you work about 20 hours the first week.  You figure your first paycheck will be about $140 ($7 x 20), but when you get your check, it’s only $109.20!  What happened?  Tax withholdings and other deductions.  Your gross pay will be reduced by these amounts to produce the pay you see on your paycheck, the net pay – that is, the actual amount left for you to spend and to budget. 

Mandatory deductions include various tax withholdings.  The U.S. tax system is a “pay-as-you-go” system, meaning we pay taxes on the money we earn as we earn it.  When taxes are deducted from your paycheck, they are withheld until it’s time to calculate what income taxes you may or may not owe for the past year.

When tax season comes around, it is your responsibility to determine how much you actually owe based on your unique circumstances and income. If you’ve withheld too much, you’ll get a tax refund – the government will return some of the money you paid throughout the year. If you pay too little, you’ll owe money on or before tax day, April 15th. You can change the amount you are withholding by making changes to the W-4 form you completed when you began working for your employer. If you choose to claim exemptions (for example, filing as married or claiming dependants), less money will be withheld from your paycheck.  If you claim “0” or no exemptions, more money will be withheld each pay period. Regardless, you need to pay the taxes you owe to the federal and, usually, state governments.  Taxes are used to pay for programs and services, such as national defense, roads, schools, fire and police departments, and student financial aid.

Voluntary deductions include payments we may make into a retirement fund or for charity.

Look at Tisane’s pay stub again and then answer questions about it.

Rita’s Boutique


Emp No   Employee Name  SSN   Period Beg  Period End
58238   Tisane Wilson  123-45-6789  07/04/09  07/17/09


EARNINGS  Reg Hrs    OT Hrs   Rate   Amount  YTD Amount
Regular   60.00      0.00 8.00   480.00   1,440.00


EMPLOYER PAID BENEFITS                     Amount  YTD Amount
Health Insurance    30.15   90.45
Social Security     29.76   89.28
Medicare     6.96   20.88
Retirement     13.55   40.65
BENEFITS Total     80.42   241.26


EMPLOYEE DEDUCTIONS                         Amount  YTD Amount
Federal Tax Withholding   44.81   134.43
Social Security Withholding   29.76   89.28
Medicare Withholding    6.96   20.88
State Tax Withholding    4.80   14.40
City Tax Withholding    1.40   4.20
Health Insurance    30.05   90.15
Disability Insurance    2.25   6.75
Retirement     13.55   40.65
Charitable Donation    2.00   6.00
DEDUCTIONS Total    135.58   406.74
NET PAY     344.42   1,033.26


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