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Paycheck Deductions

Paycheck Deductions. Pay Stub vs. Paycheck. Paycheck: is a check issued to an employee as payment for salary or wages. It is the paper that you use to cash your check or deposit it in the bank.

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Paycheck Deductions

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  1. Paycheck Deductions

  2. Pay Stub vs. Paycheck • Paycheck: is a check issued to an employee as payment for salary or wages. It is the paper that you use to cash your check or deposit it in the bank. • A pay stub: is a printed statement of the amount an employee is paid, showing deductions for tax, social security, and insurance • Good way to keep track of records

  3. What are Deductions? • A deduction is money withheld from a paycheck. • Required deduction examples: income tax, social security tax, Medicare tax • Optional deduction examples: health insurance, savings plan • Gross pay is total salary or wages. • Net pay is gross pay minus deductions. (take home pay)

  4. Income Tax Withholding • Exemption: a person you claim on your tax return as a dependent • Dependent: a person who depends on you for more than half of his/her support • More exemptions you claim, less tax is withheld • Yourself counts as one exemption (unless you are claimed by someone else)

  5. Social Security Tax • Withheld for the federal government • Provides system of old-age, survivors, and disability insurance • 2010 rates: • 6.2% on earnings up to $106,800, then goes up • 12.4 % on earnings up to $106, 800 for self-employed • Money withheld is put into an account under your name and social security number • Part of FICA (federal insurance contributions act) • Employers required to verify workers are eligible to work (I-9 form)

  6. Medicare Tax • Withheld for the federal government • Pays for medical care for retired persons and disabled • Part of (FICA) • 2010 rate: • 1.45% on all earnings • 2.9% for self-employed • Employer must contribute same amount • Combines with Social Security to form FICA

  7. Worker’s Compensation Insurance • An insurance plan that pays medical and disability benefits to workers injured on the job or contract diseases related to the job • Benefits may be paid to the employee’s family if the employee is killed on the job • Amount based upon earnings and work history of employee • Vary by state • Can be deducted from paycheck

  8. Optional Deductions • Health Insurance Life Insurance • Disability Insurance Dental Insurance • Vision Insurance Flex 125 Plan • Long-term Insurance Savings Plan • Retirement Plan HAS • Stock Purchase Plan Charitable Donations

  9. Paycheck/Tax Forms • W-4 • Filled out when you start your job • Single/Married Rate • Claim exemptions • Can be changed at any time • Any additional amount withheld • W-2 • Used to report taxable income a worker received during calendar year • 1 copy to federal, 1 to state, 1 to local (if applicable), 3 to worker

  10. 1040EZ • Short tax return form designed for single/joint filers with no dependents or itemized deductions • Best for college students • 1040A • Two page form allows more options for income/deductions • Use if interest income is more than $1,500 • 1040 • “long form” • Most used • Itemize deductions, file separately from spouse • Business Owners or business Income • Losses • 1099-INT • Reports Interest earned • Sent to individuals by banks or institutions that paid you interest

  11. E-Filing • It is a fast and safe (?) way to file a tax return. • You can e-file yourself or hire an authorized e-file provider. • Those who meet adjusted gross income requirements can e-file free. ($57, 000 or less) • Refunds are often received much quicker.

  12. Form W-2 Slide 14 2-3 Taxes and Other Deductions

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