Understanding Your Paycheck Stub, the taxes you pay and deductions you withhold and where they go.

1. 7.13.2.G1
What do you feel is the best part of
beginning a new job?
There are many different answers
to this question:
• Self satisfaction
• Learning new skills
• Change in routine
However, many people will believe it is the
PAYCHECK received from that job!
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 1
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 7.13.2.G1
Family Economics & Financial Education
The Essentials to Take Charge of Your Finances
Understanding Your
Paycheck Essentials

3. 7.13.2.G1
What does an employee have to do
before receiving a paycheck from a
new job?
• Fill out employment forms
1.
2.
• Form W-4 and Form I-9
• Choose how to receive the
paycheck (if options are
available)
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

4. 7.13.2.G1
Form W-4
Employee’s Withholding Allowance Certificate
Determines the percentage of an employee’s pay
that will be withheld for federal income taxes
What are taxes?
Taxes- Compulsory charges imposed on
citizens by local, state, and federal
governments
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

5. 7.13.2.G1
Taxes
Provide public goods and services
What is an item or service that you use
every day that is paid for by taxes?
• Citizens pay many different types of taxes in
many different ways
– Income tax, sales tax, property tax
• Largest amount of taxes is paid on income
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

6. 7.13.2.G1
Income Taxes
Income Taxes
Employers are required
to take income taxes
directly out of an
employee’s paycheck
Form W-4
Lets an employer know
how much of an employee’s
paycheck to withhold to
pay federal income taxes
Federal and State
Both Federal and State
Income Tax
Allowances
Amount withheld is
determined by the number
of allowances an employee
claims on Form W-4
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7. 7.13.2.G1
Allowances
• 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
– Dependent – a person who relies on the taxpayer
for financial support
Number of
allowances
claimed on
W-4
Amount of
income
Amount of
federal income
tax withheld
from paycheck
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

8. 7.13.2.G1
Form I-9
Employment Eligibility Verification Form
Verifies the eligibility of individuals to avoid
hiring undocumented workers or others who are
not eligible to work in the United States
Must provide documentation
which establishes identity and
employment eligibility
Driver’s
License
Passport
Social
Security card
Birth
Certificate
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

9. 7.13.2.G1
What are methods employers can
use to pay employees?
Will discuss the following methods:
1. Paper Paycheck
2. Direct Deposit
3. Payroll Card
An employer may offer only one or all of these
payment options to their employees.
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

10. 7.13.2.G1
What is a Paper Paycheck?
Paper Paycheck – payment given with a paper check
with a paycheck stub attached
Paycheck stub – lists important information about the
paycheck and outlines the deductions made
• Least secure
• Most common
 Employee is completely responsible for
• Employee may choose
paycheck
what action to do with the
 Increased chance of the paycheck
paycheck
getting lost
• Deductions are clearly
• The cost for employers to print paychecks
identified on the paycheck
is greater compared to direct deposit
stub attached
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

11. 7.13.2.G1
What is Direct Deposit?
Direct Deposit - employers directly deposit employee’s
paycheck into the authorized employee’s depository
institution account
– Employee receives a paycheck stub
• Increased security and
• Employees must use a
convenience for employee
depository institution for
• Employee knows exactly when
this method to be available
paycheck will be deposited
• Employee can view their
paycheck stub to see what
deductions have been taken
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

12. 7.13.2.G1
What is a Payroll Card?
Payroll Card - payment electronically loaded
onto a plastic card
– Funds are automatically deducted from the balance of a payroll
card when a purchase is made
– Can be used for ATM withdrawals or to make purchases
– Employee will receive
some type of paycheck
stub (may be electronic)
– There can be numerous
fees associated with
payroll cards
• Safer than
• Employees must
carrying large
be careful of fees
amount of cash
charged by
• Can review
payroll cards
paycheck stub
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

13. 7.13.2.G1
Receiving a Paycheck
Which payment method would work best for you?
Will receive payment after the next pay period
Pay period - the length of time for which an employee’s
wages are calculated
Weekly
Bi-weekly
Twice a
month
Monthly
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

14. 7.13.2.G1
Reading a Paycheck Stub
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Why is it important to understand how to
read a paycheck stub?
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

15. 7.13.2.G1
Personal Information
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– States the employee’s full name, address, and Social
Security or Employee Identification number
– Always check to ensure this information is correct
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 15
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

16. 7.13.2.G1
Pay Period
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– The last day of the pay period is not always
payday to allow a business to accurately
compute wages
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

17. 7.13.2.G1
Gross Income
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– The total amount of money earned during a
pay period before deductions
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

18. 7.13.2.G1
Net Income
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– The amount of money left after all deductions
have been withheld from the gross pay earned
in the pay period
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

19. 7.13.2.G1
Payroll Withholdings
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– The amount of money subtracted or deducted from the gross pay earned
– Mandatory deductions to pay taxes
– Optional deductions to pay employee sponsored medical
benefits, and/or retirement benefits
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

20. 7.13.2.G1
Federal Withholding Tax
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– The amount required by law for employers to withhold from earned
wages to pay federal income taxes
– Largest deduction withheld from an employee’s gross income
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 20
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

21. 7.13.2.G1
State Withholding Tax
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– The percentage deducted from an individual’s paycheck to assist in
funding government agencies within the state (not all states have state
income tax)
– The percentage deducted depends on the amount of gross pay earned
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 21
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

22. 7.13.2.G1
FICA
(Federal Insurance Contribution Act)
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– This tax includes two separate taxes: Fed OASDI/EE or Social
Security and Fed MED/EE or Medicare
– These two taxes can be combined as one line item or itemized
separately on a paycheck stub
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 22
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

23. 7.13.2.G1
Social Security
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– 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
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 23
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

24. 7.13.2.G1
Medicare
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– 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
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 24
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

25. 7.13.2.G1
Retirement Plan
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– Optional deduction
– The amount an employee contributes each pay period to a retirement plan
– A specified percentage of the contribution is often matched by the employer
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 25
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

26. 7.13.2.G1
Medical
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– Optional deduction
– The amount taken from the employee’s paycheck for employersponsored medical benefits
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 26
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

27. 7.13.2.G1
Year-to-Date
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Income
Payroll Withholdings
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– Total of all of the deductions which have been withheld from an
individual’s paycheck from January 1 to the last day of the pay
period indicated on the paycheck stub
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 27
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

28. 7.13.2.G1
Summary
What is the process to obtain a paycheck?
Fill out employment forms
Determine method to receive paycheck
Form W-4
Receive paycheck
• Determines
Examine
Check the
Federal Income advantages and
paycheck stub
After next pay
Tax withheld
disadvantages of period
Make sure you
Form I-9
each method
have been paid
offered to
• Employment
the correct
determine best
eligibility
amount
method for you
© Family Economics & Financial Education – October 2010– The Essentials to Take Charge of Your Finances – Understanding Your Paycheck Essentials – Slide 28
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona