WATCH THIS OVERVIEW VIDEO FIRST TODAY: https://screencast-o-matic.com/watch/cqnu3a0Dvd
BUDGET CHALLENGE PAYROLL
GROSS & NET PAY LESSON
Pit Stop Summary: This Pit Stop explains how gross income is reduced by deductions and how it translates to the net pay deposited into a checking account.
- Paycheck stub: Document detailing an employee’s gross pay, deductions, and net pay amounts.
- Gross pay: Money received for performing work or a service prior to
- Net pay: Money received after taxes and deductions have been withheld.
- Deduction: Amount withheld from an employee’s paycheck by their employer.
Navigation Tip #1: Review paycheck stubs for accuracy at Student Home>Employer.
- Paycheck stubs and bank statements are the most important (and often most overlooked) statements.
- Review differences between salaried/exempt employees and hourly employees.
- Salaried/exempt employees are compensated for 40 hours per week on an ongoing basis.
- Hourly employees are compensated for actual hours worked (up to 40 hrs/wk) at the hourly rate and overtime hours are compensated at a minimum 1.5 the hourly rate.
- In the simulation, students are exempt and eligible for a raise and/or bonus. (reflected in the employment information included in the info packet.)
- It is important to review paystubs for correct personal information (name, address, and employee ID number) and notify yout employer immediately if there is an error. Inaccurate information could have negative tax implications.
Navigation Tip #2: Do I have to pay for that? Mandatory vs. optional deductions
- Mandatory deductions in the Budget Challenge are:
- FICA Tax: Social Security Tax and Medicare Tax to support retirees, the disabled and children of deceased workers.
- Federal Income Tax: Collected to fund public services for example, national defense.
- State Income Tax: Collected by most states to fund state public services for example, roads.
- Optional deductions in the Budget Challenge are:
- Employee 401(k) contribution: Money an individual contributes to their 401(k) retirement account. Students can change their 401(k) contribution percentage per paycheck at Student Home→401(k).
- Health insurance premium: Pre-tax money an individual pays for health insurance coverage. For simplicity, all participants in the simulation have a health insurance deduction and are not permitted to opt out. In the U.S., not taking advantage of employer-offered health insurance (or opting out) is allowed. However, individuals are now required to have qualified health insurance or else pay a fee (tax penalty on their federal tax return), unless they apply for and are granted an exemption.
Navigation Tip #3: Saving in your 401(k) helps you pay less taxes.
- A 401(k) Retirement Plan allows participants to contribute earnings pre-tax to a retirement savings account. The contributions and the earnings on the contributions are tax-deferred.
Navigation Tip #4: Impact of W-4 allowances on net pay.
- Taxpayers use form W-4 to calculate and claim their withholding allowance.New employees complete a W-4 which asks for the number of exemptions they claim.. An employer uses the number to determine how much of an employee’s pay to subtract from their paycheck to remit to the tax authorities.
- The more allowances claimed, the less income tax will be withheld from one’s paycheck and the fewer allowances claimed, the more income tax will be withheld.
- The table illustrates the impact of W-4 allowances to federal withholding, net pay, gross pay, total tax burden, tax refund (if receiving a refund), and owed taxes (if owing taxes).
AFTER WATCHING THE OVERVIEW VIDEO, DO THE FOLLOWING IN ORDER:
- Immediately after opening this Google Doc: https://docs.google.com/document/d/1GEXiGor-PZEgCbb9Zl961c2qb9HDuPE8OgIhBorJhyQ/edit?usp=sharing
- From FILE choose MAKE A COPY
- In the file name in the top left side of your screen, delete COPY OF and replace it with YOUR NAME
- Click SHARE and share it to firstname.lastname@example.org
- In the Doc you just copied & shared, we will do #1-4 today. Before you leave class today you will:
- Explain the purpose of a W-4 and what withholdings mean for your paycheck
- Identify the elements of the payroll tax, how much they deduct, and where the money goes
- Complete a W-4