CD - Understanding My Pay Lesson

CTAE_FLLessonTopBanner.png Understanding My Pay

When an employer agrees to pay an employee a certain amount of money that does not mean the employee will see that amount of money when the paycheck is issued. All U.S. workers pay income taxes on their earnings. These are federal, state and sometimes local taxes that are deducted from the employee's gross pay. The deduction of these taxes is usually referred to as withholding. After all deductions and taxes have been removed from the gross pay, the employee is left with net pay, which is the amount of money the employee actually receives to spend.

When it comes to withholding taxes, the amount of money withheld for income taxes varies from person to person, depending on earnings. FICA, an abbreviation representing the Federal Insurance Contributions Act, is paid by every employee to fund programs such as Social Security and Medicare. This amounts to 5.65% of the amount of money earned each pay period. In addition, the employer also pays FICA taxes for each employee. Employers also pay FUTA (Federal Unemployment Tax Act) taxes, which is used to fund state workforce agencies.

Consider the following pay example.

Overtime for Della: worked 40 regular hours and 19 overtime hours this week at $20/hr Regular pay - 40 x $20 =$800 Overtime Pay - $20 x 1.5 = $30 (Overtime Rate) 19 x $30 = $570 (Overtime Pay) Total Net Pay - $800 + $570 = $1370 Deductions = $342.50 $1370 - $342.50 =$1027.50

What percentage of Della's pay is being withheld for taxes? 25%  Do you know how to calculate that? Deductions / (Regular Pay + Overtime Pay) =.25 =25%

 

Examine Your Paystub Interactive

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Career Development Module Review

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