Your Paycheck and Taxes

It is a good idea to pay careful attention to your paycheck. Not only to become a financially responsible citizen, but also to make sure your employer has compensated you correctly. You should also pay attention to the W-4 form you fill out each time you start a new job. Chances are you are withholding "0" or "1" on the W-4 form. As you continue to make more money you will change your withholding allowances so the government will take out more or less depending on the amount of dependents you have. Ideally, you want the government to take out the same amount of taxes as required for your tax bracket. Unfortunately, if you don't adjust your allowances correctly you may have to pay at tax time or even worse get a check at tax time, with the government earning interest on your money all year long!

Go to paycheckcity, click on the paycheck calculator (from the personal calculators link on the left hand side.) Put in the following amounts to see the difference between claiming zero and one allowance makes in your paycheck. This example is for a typical part time position where you get paid every two weeks (bi-weekly.)
 

GENERAL INFORMATION SECTION:
--State:change to California
--Gross Pay-$210 Per Pay Period
--Pay Frequency-Bi-weekly
--Federal Filing Status-Single
--# of Federal Allowances- start with O then change to 1 for the comparison.
STATE AND LOCAL INFORMATION FOR CALIFORNIA
--Allowances- 0

Click on Calculate--Then change the allowances to 1.

Answer the following questions in complete sentences in your Word document :

1. What was your net pay with 0 allowances?

2. What was your net pay with 1 allowance?

3. Were more taxes taken out with 0 or 1 allowance?

4. Why would you want to claim 1 allowance versus 0?

5. What is the difference between net pay and gross pay?

Next, from the paycheck city home page click on the payroll glossary link (from research/forms) and answer the following questions:

6. What taxes are imposed under the FICA law?

7. What percentage of your gross pay goes toward Medicare each month?

8. What does the other 6.2% of FICA taxes go to?

9. What are some benefits that may be offered under a cafeteria plan?

10. Do you have to report tips and when?

11. What is the purpose of the W-4 form?

12. What are 3 services, you can think of, that the government, Federal or State, provide in exchange for taxes?