EC - Deductions Lesson

Deductions

Introduction

So, my earnings don’t all get into my bank account because of taxes. I get that. But, the rest of it is mine, right?

Not exactly! There are other deductions that are accounted for before you get to your net pay or the amount that actually goes into your bank account. These include Social Security and Medicare payments as well as group insurance payments for your health benefits. There can be other deductions as well such as union dues, charitable contributions, retirement plans, worker’s compensation, savings accounts…

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Deductions

Finding Net Pay: Social Security and Medicare

The Federal Insurance Contributions Act (FICA) requires your employer to deduct 7.65% of your income to cover Social Security and Medicare taxes. Social Security, which represents 6.2%, is deducted from your pre-tax income. There is a maximum amount that is set by the Social Security Administration. If you earn above the maximum amount, you will automatically have the maximum amount deducted from your paycheck instead of the percentage. Medicare, which represents 1.45%, is paid on all your earnings without a maximum amount. Your employer must also contribute an amount that equals your contribution.

Let’s use everything that we have learned about deductions so far to calculate net pay. You will need to use the tax chart linked below. Click through the interactive, or look at the transcript. Try to determine the answers to the practice questions on your own before checking the solutions.

Click here to download the Income Tax Allowances Charts. Links to an external site.

Click here to view the transcript of the above interactive activity. Links to an external site.

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⭐️ Help Video:

If you found any of these problems challenging, here are two videos that will go over some of the answers. 

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Paycheck Drag and Drop Activity

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