Financial Literacy and Understanding Your Paycheck

2

Money Talk

In groups of three or four discuss the following:

• How much money did you spend last week?

• What did you spend it on?

• What did you spend the most on?

• Did you save any money last week?

• After looking at your expenses from last week would you change anything? Why or why not?

3

Warm Up

• Congratulations, you’re hired and have been offered a salary of $35,000/year. Will you take home that $35,000? Why or why not?

• Why do we pay taxes?

4

Did You Know?

Most developed nations pay more taxes than we do in the U.S. and nearly all provide universal healthcare.

A

5

What’s on your paycheck?

• Take out your paychecks

• Find the following

• Gross pay this period

• Gross pay this year

• Examples of statutory deductions

• Federal income tax paid this period

• State income tax paid this year

• Examples of other (voluntary) deductions

• Net pay

• Taxable income

6

Paycheck Terms

Break into groups of three, define the following terms using your own words, and give an example

• Gross Income

• Deduction

• Taxable Income

• Federal Income Tax

• State Income Tax

• Social Security

• Medicare

• Net Income

7

Taxes as They Relate to My Paycheck

• Gross Income: Income before taxes

• Deductions: Items like health and dental insurance, flexible spending, 401k, union fees, etc. that reduce taxable income

• Taxable Income: Gross income – deductions

• Federal Income Tax: A tax paid to the federal government

• State Income Tax: A tax paid to the state government

• Social Security Tax: A tax used to fund the Social Security program

• Medicare Tax: A tax used to fund the Medicare program

• Net Income: Gross income – deductions & taxes

8

What Gets Taken Out of My Paycheck?

• Federal income tax

• Brackets

• State income tax

• Depends on the state: some are flat, some have brackets, and some have none

• FICA

• Social Security

• Medicare

• Deductions: Reduce taxable income

• Health Insurance

• 401K

9

Marginal Tax Rates 2015

Individual:

10

Individual Practice

Before becoming president, President Obama worked at a Baskin Robbins in Hawaii, serving ice cream. He made minimum wage, which is now $7.25 in Hawaii. If he had this job today, at minimum wage and working 40 hours a week for 52 weeks, how much would he pay in federal income tax in a year?

Kanye West made $40 million in 2013. What what did he pay in federal income tax?