Unit B: Career and Educational Exploration

Competency CM03.02

Evaluate Career Goals in terms of the experience, knowledge and skills needed to achieve them.

Objective CM03.02Check the progression of formal and informal learning experiences toward achieving personal and career goals

Essential Questions

1. What are the ways in which an employee can be paid?

2. What should employees know about employment and income tax forms?

PAYDAY

1. Have you ever worked for pay?

2. Did you look forward to paydays?

3. Journal Entry: List words to describe you feelings on paydays.

A Payday candy bard could serve as a symbol of monetary compensation for work.

• Eat Now and enjoy

• Trade for something else

• Save for later

• Give away

• Enjoy the smell

Activity

Use available textbooks to search for all types of monetary and non-monetary compensations for work.

List these on the handout Appendix 4.01A, “Forms of Compensation for Work,” then write an explanation and give at least one example of each.

Types of Compensation for Work

Types of monetary compensation---wage, salary, commissions, tips, bonuses

Wage---an amount of money paid for a specified quantity of labor Minimum wage---the lowest wage employers may legally pay

workers Types of wages---full-time, part-time, flexible/seasonal, and

overtime Salary-a set amount of income paid for a set period of time

worked Commission-income paid as a percentage of sales made by a

salesperson

Types of monetary compensation---wage, salary, commissions, tips, bonuses

Tips-also known as gratuities-monies paid by customers to those who provide services

Bonus-money in addition to base pay, either as reward for performance or as share of profit

Types of non-monetary compensation---also known as benefits

Vacations, holidays and sick leave Insurance Savings/retirement plans Education-related benefits---tuition, credits, job

training Family -related benefits---child care, maternity leave,

adoption leave/support, family leave

Read the ingredients list on the label. Just as each candy slice contains some of

each ingredient, so each paycheck contains specific kinds of information.

Activity

Have students scan FEFE 1.13.1.F1 information sheet “Understanding Your Paycheck” and complete the graphic organizers Appendix 4.01A, “Forms of Compensation,” Appendix 4.01B, “Money In, Money Out,” and Appendix 4.01C, “Employment, Wage and Tax

Forms”

Activity

Have students complete the note-taking guide, FEFE 1.13.1. L1, “Understanding Your Paycheck and Tax Forms” as they view FEFE PowerPoint “Understanding your Paycheck.” Answer questions; discuss.

(In advance, download a blank Form W-4 and Form I-9 from www.irs.gov). Stop at slides 12 and 13 and guide students as they complete Form W-4 and Form I-9.

1.13.1.G1

© Family Economics & Financial Education – Revised March 2008 – Paychecks and Taxes Unit – Understanding Your Paycheck – Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Paychecks and Tax Forms

Take Charge of your Finances

Family Economics & Financial Education

1.13.1.G1

Where Does My Money Go?

• Almost 31% of an individual’s paycheck is deducted– Taxes are the largest expense most

individuals will have– Therefore, it is important to understand

the systematic deductions• U.S. tax system operates on an

ongoing payment system– Taxes are immediately paid on income

earned

1.13.1.G1

Paying Employees

Three methods employers may use to pay employees:

1. Paycheck – payment given with a paper check with a paycheck stub attached• Most common method• Employee responsible for handling the

paycheck• Immediately see payroll stub and

deductions

1.13.1.G1

Paying Employees continued

2. Direct Deposit - employers directly deposit employee’s paycheck into the authorized employee’s depository institution account• 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

1.13.1.G1

Paying Employees continued

3. Payroll Card - payment electronically loaded onto a plastic card• Funds are directly deposited by an

employer into an account at a depository institution that is linked to the payroll card– Parties involved:

» Employer» Employee» Depository institution

• Use the payroll card for ATM withdrawals or to make purchases

1.13.1.G1

Payroll Card

• There are numerous fees associated with payroll cards– Number of fees depends upon the depository

institution– Examples:

• Monthly or annual fee• ATM fee• Inactivity fee• Fee after a specific number of transactions have been used• Replacement fee if the card is lost, stolen , or destroyed• Load fee (when funds are placed on the card account)• Point of sale (POS) fee for using the card at a POS terminal,

or an electronic payment processor

1.13.1.G1

Benefits of Using Payroll Cards

• Employers– Lower internal costs

• Costs associated with producing, handling, and distributing pay checks is eliminated

• Depository Institutions– Profit from the fees

charged to employees, employers, and merchants

• Employees– Safer than carrying large

amounts of cash– Unbanked employees do not

have to pay check cashing fees• Americans roughly spend $8

billion annually in check cashing fees

– Can access electronic monthly statement of transactions

– Can receive a second card• Give allowances to children• Send money internationally

– Easily make online purchases

1.13.1.G1

Consumer Protection with Payroll Cards

• Regulation E – Electronic Fund Transfer Act– Protects payroll card holder from

fraudulent charges on lost or stolen cards• Card holder is only liable for $50 if a lost or

stolen card is reported within 48 hours

– Over four million paychecks are stolen annually with no protection to employees

– Regulation E provides exceptional safety and protection for payroll card holders

1.13.1.G1

• Taxes – Compulsory charges imposed on citizens by local, state, and federal governments.– Used to provide public goods and services.– Largest amount of taxes a person pays is on

his/her income.

• Internal Revenue Service (IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress.

1.13.1.G1

Starting a New Job

To receive a paycheck, an employee must:– Complete a Form W-4

• Employee’s Withholding Allowance Certificate

– Complete a Form I-9• Employment Eligibility Verification• http://www.formi9.com/form-i9-employment-

verifications.aspx

1.13.1.G1

Form W-4

Employee’s Withholding Allowance Certificate– Determines the percentage of gross pay

which will be withheld for taxes• 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

1.13.1.G1

Steps to Completing a Form W-4

• Print or type legal name on Line 1 and home address directly below the name

• Write Social Security number on Line 2• On Line 3, check the appropriate box to

indicate marital status• Enter a zero on Line 5 if not claiming any

allowances• Sign name and date the form before giving

it to the employer• Keep a copy for personal records

1.13.1.G1

Form I-9

Employment Eligibility Verification Form• Used to verify 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– Examples include driver’s license, passport,

Social Security card, and birth certificate

1.13.1.G1

Reading a Paycheck

Family Economics & Financial Education

1.13.1.G1

Paycheck Stub

Paycheck Stub– A document included each pay period

which outlines paycheck deductions

On-The-Go

EmployeeBeakens, Joe

Employee Identification201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

Pay Type-Gross Pay

Deductions Current Year-to-date

$1,353.33 Federal WithholdingState WithholdingFed OASDI/EE or Social SecurityFed MED/EE or MedicareMedical401K

$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

1.13.1.G1

Personal Information

Personal Information– States the employee’s full name, address, and Social

Security or Employee Identification number– Always check to ensure this information is correct

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Pay Period

Pay Period– The length of time for which an employee’s wages are

calculated; most are weekly, bi-weekly, twice a month, or monthly

– The last day of the pay period is not always payday to allow a business to accurately compute wages

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Gross Pay

Gross Pay– The total amount of money earned during a pay period

before deductions• This is calculated by multiplying the number of hours

worked by the hourly rate• If a person is on salary, it is the total salary amount

divided by the specified number of pay periods

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Net Pay

Net Pay– The amount of money left after all deductions

have been withheld from the gross pay earned in the pay period

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Deductions

Deductions– The amount of money subtracted from the gross pay

earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Federal Withholding Tax

Federal Withholding Tax– 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– Largest deduction withheld from an employee’s gross income

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

State Withholding Tax

State Withholding Tax– The percentage deducted from an individual’s paycheck

to assist in funding government agencies within the state

– The percentage deducted depends on the amount of gross pay earned

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

FICA (Federal Insurance Contribution Act)

FICA– 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

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Social Security

Social Security– 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

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Medicare

Medicare– 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

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Medical

Medical– The amount taken from the employee’s paycheck for

medical benefits– Occurs when the employer has a medical plan for

employees but does not pay full coverage for his/her benefits

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Retirement Plan

Retirement Plan– The amount an employee contributes each pay period to

a retirement plan– A specified percentage of the contribution is often

matched by the employer– May be a 401K, a state, or local retirement plan

On-The-Go

Check #164

Pay Type-Gross Pay

$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

1.13.1.G1

Year-to-Date

Year-to-Date• 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

On-The-Go

Check #164

Pay Type-Gross Pay

$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

Ways employees are paid

Paycheck Traditionally, a paper document issued to an

employee for services rendered Traditionally, the most common method of

payment for work Employer physically provides the employee

with his/her paycheck

Paycheck stub Attached to the paycheck to show the

deductions Monetary deductions subtracted for

mandatory systematic taxes, employee- sponsored medical benefits, and/or retirement benefits

Other deductions include insurance, investments, and other fringe benefits

Contents of paycheck stub gross pay, net pay, hourly wage, hours worked, state/federal withholdings, Social Security income tax, employee’s name, Social Security number, total earned and withheld, year to date, last day of pay period

Direct deposit When employers directly deposit an employee’s

paycheck into an authorized account Employee receives on payday a paycheck

stub/electronic notice showing deductions This method is more secure because there is no

direct handling of the check and the employee knows exactly which day paycheck will be deposited and available for use

Payroll card A prepaid card offered to employees as an alternative to paper

paychecks or directly depositing wages into an employee’s financial institution account

Benefits to employees Reduces or eliminates check cashing fees Offers ability to make purchases using credit card networks Offers 24-hour access to funds via ATMs; no need to wait in lines Reduces the need to carry a lot of cash Makes money transfers more easily available to families Provides a pseudo-bank account—funds do not need to be

withdrawn entirely as when using a check casher

Payroll card A prepaid card offered to employees as an alternative to paper

paychecks or directly depositing wages into an employee’s financial institution account

Benefits to employers Reduces bank processing and check handling fees Reduces check printing costs Reduces likelihood of check fraud Reduces check reconciliation costs Increases employee productivity (no time off to cash or deposit

paycheck) Reduces lost/stolen check replacement costs

Forms for work and income taxes

Income taxes are taxes paid on earnings. They are known as progressive taxes; the

higher the income earned, the higher the amount of taxes.

In contrast, sales taxes are regressive taxes; they impose higher tax rates on those with lower incomes than those with higher.

Forms and materials Used when a person begins a job

W-4 – the Employee’s Withholding Allowance Certificate; information provided here determines the percentage of gross pay to be withheld for taxes

I-9 – the Employment Eligibility Verification form; information gathered in this form is for employers to verify eligibility of individuals for employment; helps avoid hiring undocumented workers or others who are not eligible to work in the United State

Forms and materials Used when filing income taxes

W-2 - states amount of money earned and taxes paid through previous year

Form 1040/1040A/1040EZ - common forms for filing federal income tax return

1099 Forms - Tax forms that report other sources of income earned during a tax year. 1099-INT for interest income, 1099-DIV for dividends on investments, and 1099-MISC for other sources of income

Forms and materials Used when filing income taxes

Records of deductible expenses, including receipts and bank statements

Social Security number serves two major purposes: (1) provides a record of your covered earnings for retirement and disability benefits and (2) serves as an identification number for the Internal Revenue Service

Activity

Have students use the List-Group-Label literacy strategy to name the categories of terms in Appendix 4.01D, “List-Group-Label.”

Journal Entry

Display the Jump$tart principle, “Know your take home pay.”

Discuss the difference between gross and net pay.

Activity

Distribute FEFE 1.13.1.A2, “Paycheck Stub 1” and 1.13.1.A3, “Paycheck Stub 2.”

Have students work in pairs and use the KWC numeracy strategy with the Appendix 4.02E, “KWC Chart” to complete the first check stub activity.

Have students work independently to complete the second check stub.

Activity

Using a Twister game mat, have students play FEFE 1.13.1.J1, “Where Did All the Earnings Go?”

Activity

Have students complete Appendix 4.01F, “Scenarios: Payroll Forms”.

Provide sample W-4, I-9, and W-2 forms for students to complete using information about the two brothers in the scenario.

Activity

As a review, have students complete FEFE 1.13.1.A6, “Paychecks Math” and 1.13.1.A5 “Paychecks.”

Internal Revenue Service www.irs.gov/formspubs

Social Security Administration www.ssa.gov/online/ss-5.html

Office of the Comptroller of the Currency www.occ.treas.gov/cdd/payrollcards

Social Security Online http://www.ssa.gov/OACT/ProgData/taxRates.html

The amount of money paid for a specified quantity of labor.

Salary

• A set amount of money paid for a set period of time worked.

Commission

• Income paid as a percentage of sales made by a salesman

Money paid by customers to those who provide services.

Money paid in addition to base pay, either as a reward for performance or as a share of profit.

paycheck

A form of payment to an employee

direct deposit

An employer deposits the employee’s paycheck directly into the authorized employee’s depository institution account.

payroll card

A prepaid card that is offered to employees as an alternative to paper paychecks or directly depositing wages into an employee’s depository institution

paycheck stub

This part lists the paycheck deductions as well as other important information.

pay period

The length of time for which an employee’s wages are calculated.

gross pay

The total amount of money earned during the pay period before deductions.

net pay

The amount of money left after all the deductions have been taken from the gross pay earned in the pay period.

deduction

Money subtracted from gross pay for required taxes, employee insurance, and retirement benefits.

federal withholding tax

The amount required by law for employers to withhold from earned wages to pay federal income taxes.

state withholding tax

The percentage deducted from an individual’s paycheck to assist in funding government agencies within the state.

Federal Insurance Contributions Act. This tax includes Social Security and Medicare. Social Security taxes are based on a 6.2 percentage of the employee’s gross income. Medicare is 1.45% of gross income.

retirement plan

The amount an employee contributed each pay period to a retirement plan.

medical

The amount taken from the employee’s paycheck for medical benefits.

year-to-date deductions

The total of all deductions which have been withheld from an individual’s paycheck from January 1 to the last day of the pay period

A compulsory charge imposed on citizens by local, state, or federal governments.

progressive tax

The higher the income, the higher the amount of taxes paid

regressive tax

They impose a higher tax rate on those with lower incomes than those with higher

Form W-2

States the amount of money earned and taxes paid throughout the previous year

Form W-4

An employee’s withholding certificate---the information provided on this form determines the percentage of gross pay to be withheld for taxes

Form I-9

Employment Eligibility Verification Form---the information on this form is for employers to verify the eligibility of individuals for employment.

1099 Forms

Tax forms that report other sources of income earned during a tax year.

1099-INT- Interest income earned on savings and/or investment accounts during the previous year.

1099-DIV- Dividends earned on investments during the previous year.

1099-MISC- Income earned from self-employment, royalties, rent payments, unemployment compensation, and other sources.

Journal Entry

Unit B: Career and Educational Exploration

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