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KNOW YOUR PAYCHECK
Have you
ever really examined a paycheck? Really looked at it? If you
haven't, you may be in for a surprise or two. This section
will deconstruct a paycheck so you can see what you're bringing
home versus what's going for taxes.
Net Versus Gross Income
Let's say you make pizzas at a local college hangout. You
earn $7 an hour and you work about 20 hours the first week.
You figure your first paycheck will be about $140 ($7 X 20).
But when you receive your check, it's only $108.29!
What's up with That?
Even college students must pay federal and state income taxes,
Social Security tax, and Medicare tax. (The amount of state
income tax varies; a few states don't even have this tax.)
The amount of money you make before taxes, or the number
of hours you work multiplied by your hourly rate, is known
as your gross pay. The amount
of money you take home in your paycheck after all the taxes
and other deductions are taken out is your net
pay or take-home pay.
Your Paycheck
Your paycheck should clearly show your gross pay and the
deductions (taxes) taken out to arrive at your net pay. If
you make $140 one week, your taxes may look something like
this, depending on the state:
| Federal income tax |
11 percent of gross pay |
$140 x .11 |
= $15.40 |
| State income tax* |
4 percent of gross pay |
$140 x .04 |
= $5.60 |
| Social Security tax |
6.2 percent of gross pay |
$140 x .062 |
= $8.68 |
| Medicare tax |
1.45 percent of gross pay |
$140 x .0145 |
= $1.40 |
| Total deductions |
$31.71 |
| $140 (gross pay) minus
$31.71 (all deductions) = $108.29 (net pay) |
*Not applicable in all states. Check the State
Comparisons section of the Federation of Tax Administrators
Web site at www.taxadmin.org
for information on your state.
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