Understanding Your Paycheck
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paycheck
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payment given with a paper check with a stub attached
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Characteristics of Paycheck
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Most common method/ Employee responsible for handling the paycheck/ immediately see payroll stub and deductions
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direct deposit
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employers directly deposit employee's paycheck into the authorized employee's depository institution account
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Characteristics of direct deposit
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Employee receives the paycheck stub detailing the paycheck deductions/Most secure because there is no direct handling of the check /Employee knows exactly when paycheck will be deposited and available
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payroll card
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payment electronically loaded onto a plastic card
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Benefit to employer for using payroll card
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Lower internal costs Costs associated with producing, handling, and distributing pay checks is eliminated
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Benefit to bank for using payroll card
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Profit from the fees charged to employees, employers, and merchants
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Benefit to employee for using payroll card
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Safer than carrying large amounts of cash/ Unbanked employees do not have to pay check cashing fees/ Can access electronic monthly statement of transactions/ Can receive a second card/ easily make online payments
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Regulation E
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Electronic Fund Transfer Act
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Electronic Fund Transfer Act
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Protects payroll card holder from fraudulent charges on lost or stolen cards
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Taxes
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Compulsory charges imposed on citizens by local, state, and federal governments.
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IRS
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Internal Revenue Service
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Internal Revenue Service
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Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress
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W-4
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Employee Withholding Allowance Certificate
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Employee Withholding Allowance Certificate
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Determines the percentage of gross pay which will be withheld for taxes/ Where you document the number of allowances you will claim (dependents)
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Allowances
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Used to determine the amount of federal taxes withheld from the paycheck/ A person may claim a personal allowance if no one else claims the person as a dependent
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Dependent
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a person who relies on the taxpayer for financial support
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I-9
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Employment Eligibility Verification Form
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Employment Eligibility Verification Form
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Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United States
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paycheck stub
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A document included each pay period which outlines paycheck deductions
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Pay period
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The length of time for which an employee's wages are calculated; most are weekly, bi-weekly, twice a month, or monthly
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Gross Pay
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The total amount of money earned during a pay period before deductions
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Net Pay
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The amount of money left after all deductions have been withheld from the gross pay earned in the pay period
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Deductions
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The amount of money subtracted from the gross pay earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits
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Federal Withholding Tax
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The amount required by law for employers to withhold from earned wages to pay taxes/The amount of money deducted depends on the amount earned and information provided on the Form W-4
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Largest deduction withheld from an employee's gross income
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Federal Withholding Tax
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FICA
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Federal Insurance Contribution Act
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FICA includes two taxes. They are:
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Social Security and Medicare
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Social Security
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Nation's retirement program, helps provide retirement income for elderly and pays disability benefits/ Based upon a percentage (6.2%) of gross income, employer matches the contribution made by the employee
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Medicare
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Nation's health care program for the elderly and disabled, provides hospital and medical insurance to those who qualify/ Based upon a percentage (1.45%) of gross income
