Net Pay Lesson

Objectives:

Upon completion of this lesson, students will be able to

  • Demonstrate knowledge of mandatory and optional payroll deductions.
  • Calculate net pay using both mandatory and optional deductions.

Presentation:

  • Explain the difference between mandatory and optional deductions.
  • Explain the W-4 Form and method for determining allowable exemptions.
  • Explain the different Kentucky and Federal Tax Tables. Demonstrate how to calculate tax withheld based on salary and exemptions.
  • Demonstrate calculation of deductions based on percentages.
  • Explain annual limit social security tax is paid on.
  • Explain employer contribution for Social Security.

Vocabulary:

Deductions / The amount of money subtracted from Gross Pay.
Dependent / A person who relies on the taxpayer for financial support.
Direct Deposit / The paycheck is directly deposited into an employee’s authorized account by the employer. On payday, the employee receives a stub listing deductions. This is a more secure method because there is no direct handling of the check and they employee knows the exact date the check is deposited and available for use.
Federal Income Tax (FIT) / Mandatory deductions in order to pay for federal programs.
FICA / Federal Insurance Contribution Act. There are two components—Social Security and Medicare.
Local Taxes / Mandatory deductions in order to pay for local programs.
Medicare / Nation’s health care program for elderly and disabled.
Net Pay / The amount of money left after all deductions have been withheld from the gross pay.
Paycheck / The most common method for paying employees. The employee physically receives a paycheck with a paycheck stub showing all deductions. The employee is responsible for handling the paycheck.
Paycheck Stub / A document included each pay period which outlines paycheck deductions.
Payroll Card / The newest method for paying employees. This is a prepaid card linked to a depository institution rather than a checking account. The card is similar to a debit card. Some are referred to as Smart Cards with money directly loaded onto them.
Percent of Medicare / 1.45%
Percent of Social Security / 6.2%
Social Security / The nation’s retirement program. ($106,800 annual taxed limit)
State Income Tax / Mandatory deductions in order to pay for state programs.
State Withholding Tax
W-4 Form / Employee’s Withholding Allowance Certificate
Withholding Allowance / A deduction from total earnings for each person legally supported by a taxpayer.
Year-to-Date / All the deductions withheld from a paycheck from January 1 – last day of the pay period.