Paychecks Chapter 2 Personal Finance 1 Gross Pay

Paychecks Chapter 2 - Personal Finance

• 1 - Gross Pay: The amount of pay earned before deductions are made. • 2 - Net Pay: The amount of pay earned after deductions are made. • Paycheck: The part of the check that you will cash or deposit.

• Statutory Deduction from Paycheck- it is a deduction or tax you are required by law to pay. Federal income tax, FICA, • Voluntary Deduction from Paycheck- the employee chooses what deduction (Cost) is deducted from their paycheck. Investment – Roth IRA, Insurance, etc.

Definitions • Deductions: The money taken out of an employee’s paycheck • Payroll Taxes: Money deducted by federal and state governments. – 3 - Social Security (FICA) 6. 2% – 4 Medicare – 1. 45% • Employers collect FICA taxes and distribute to government) – 5 Federal Withholding Taxes (Based on Total Income) – State Labor and Industries

Pay Periods and Types of Pay Frequency How Often Paychecks Per Year Weekly Every Week 52 Bi - Weekly Every Two Weeks 26 Semi-Monthly Twice a Month 24 Monthly Once a Month 12

• Wage – Payment for Labor or services performed • Hourly Wage-Usually workers are required to work specific number of hours per week, called regular hours. (40 Hours is the usual work week) • Overtime – Hours over 40 hours worked. Usually overtime wages are “time and a half” or 1. 5 times the regular wage. ($10 Regular Pay = $15 over time pay)

• Paycheck Stub - A record of your gross pay and deductions. • Direct Deposit – S ome employers offer the service of depositing your paycheck directly into your bank account. The employee still receives the paycheck stub. • W-4 Form – A form from the Federal Government which lets you determine how much is withheld for taxes from your paycheck.

• W-2 Form – A form sent to you by your employer at the end of the year stating how much you have earned for the year and how much was deducted for federal and state taxes, social security and Medicare. Employers are required to send these to you by January 31.

• Salary – A fixed rate of pay for labor or services. Not usually tied to number of hours worked. Usually paid on semi-monthly or monthly basis. • Minimum Wage – Federal law sets this, but sometimes the state sets it higher – like in this state. • Tips – Extra money paid by customers for good service. Considered part of the wages. • Commission – A percentage of the amount of sales. • Piecework – Pay based on the number of items produced (or, in the case of agriculture, the amount produced, etc. )

Sample Pay Stud Example • John has a job as a janitor at Wenatchee Valley Clinic. John is paid $10 an hour regular pay, time and half for overtime, and is paid once a month. The pay period is September 1 st – September 30 th. H • e has medical benefits, cancer insurance and a retirement package. This pay period Suzy worked 160 regular hours and 16 overtime hours. • John’s paycheck deductions include: 6. 2% Social Security, 1. 45% Medicare, $134. 45 Federal Withholding Tax, $125. 50 Medical, $25 Cancer Insurance and $250 401 K retirement plan.