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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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