Grade 9

Intermediate

6 min

Lesson 2 of 12

Income and Your Paycheck

Not Started

Understanding where money comes from and how to read a standard pay stub.

Imagine working 40 hours at $15 an hour and expecting a$ 600 check, only to find $490 in your bank account. Did someone steal your money, or is there a logical explanation for the missing$ 110?

Learning Objectives

1.Distinguish between gross pay and net (take-home) pay
2.Identify common payroll deductions such as federal taxes, Social Security, and Medicare
3.Explain the difference between hourly wages and annual salaries

Gross Pay: The Starting Line

Gross pay is the total amount of money you earn before any deductions or taxes are taken out. This amount is determined by your employment agreement. If you are an hourly employee, your gross pay is calculated by multiplying your hourly rate by the number of hours worked:

Gross = Rate \times Hours

. If you are a salaried employee, you are paid a fixed annual salary (a set amount per year), which is divided by the number of pay periods (usually 24 or 26) to determine your gross pay per check. While your gross pay looks impressive, it is rarely the amount you actually get to spend.

1. Identify the hourly rate: $15.00/hour. 2. Identify the hours worked: 20 hours. 3. Multiply the two values:

15 \times 20 = 300

4. The Gross Pay is $300.00.

Quick Check

If a salaried employee earns $52,000 per year and is paid weekly (52 weeks), what is their weekly gross pay?

Divide the total annual salary by the number of weeks in a year.

Answer

$1,000

The Shrinkage: Mandatory Deductions

Between your gross pay and your bank account lies a series of deductions. The most common are Federal Income Tax, which funds national programs, and FICA (Federal Insurance Contributions Act). FICA consists of two parts: Social Security (6.2% of gross pay) and Medicare (1.45% of gross pay). These are mandatory contributions toward your future retirement and healthcare for the elderly. Some states also take a State Income Tax. These deductions are why your paycheck 'shrinks' before it reaches you.

1. Start with a Gross Pay of $1,000. 2. Calculate Social Security (6.2%):

1,000 \times 0.062 = 62

3. Calculate Medicare (1.45%):

1,000 \times 0.0145 = 14.50

4. Total FICA deduction:

62 + 14.50 = 76.50

Quick Check

Which deduction specifically funds healthcare for seniors and people with disabilities?

It is one of the two components of FICA.

Answer

Medicare

Net Pay: The Bottom Line

Net pay, often called 'take-home pay,' is the amount of money you actually receive after all deductions have been subtracted from your gross pay. The formula is:

Net Pay = Gross Pay - Total Deductions

. This is the most important number for your personal budget because it represents the actual cash available for your rent, food, and savings. Understanding the gap between gross and net pay prevents 'sticker shock' when you see your first professional paycheck.

1. Gross Pay:

800.00 2. Federal Tax Deduction:

80.00 3. FICA (Social Security + Medicare):

61.20 4. Health Insurance Premium:

40.00 5. Calculate Total Deductions:

80 + 61.20 + 40 = 181.20

6. Calculate Net Pay:

800 - 181.20 = 618.80

7. The employee takes home $618.80.

Key Takeaways

1Gross pay is what you earn; net pay is what you actually keep.
2FICA is a mandatory deduction consisting of Social Security (6.2%) and Medicare (1.45%).
3Hourly pay varies based on time worked, while salary is a fixed annual amount divided by pay periods.
4Always use your Net Pay, not your Gross Pay, when creating a monthly budget.

Quick Check

Multiple Choice

Which of the following best describes 'Net Pay'?

Multiple Choice

What two programs are funded by FICA?

True/False

A salaried employee's gross pay changes every week based on how many hours they work.

What's Next?

Review Tomorrow

In 24 hours, try to explain to a friend the difference between Gross Pay and Net Pay, and name the two parts of FICA.

Practice Activity

Find a sample pay stub online or ask a parent to show you theirs (with the amounts covered if they prefer). Try to identify the Gross Pay, the various deductions, and the final Net Pay.

Browse

Browse

Income and Your Paycheck

Learning Objectives

Gross Pay: The Starting Line

The Shrinkage: Mandatory Deductions

Net Pay: The Bottom Line

Key Takeaways

Quick Check

What's Next?

Income and Your Paycheck

Learning Objectives

Gross Pay: The Starting Line

The Shrinkage: Mandatory Deductions

Net Pay: The Bottom Line

Key Takeaways

Quick Check

What's Next?