Lesson 5: Understanding Paychecks
Name(s) of student(s):
Age and grade level:
Goal from IEP connected to lesson:
Objective from IEP connected to lesson:
Purpose of lesson: To acquaint the student with pay periods, withholdings, and deductions.
Materials needed: Accessible paycheck and W-4
Provide the student with an accessible paycheck. Explain that the purpose of this lesson is to acquaint her with the information displayed: pay periods, withholdings, and deductions. Point out and define the gross pay (salary before withholdings) and the net pay (portion of salary received after withholdings have been taken).
Discussion: Pay Periods
Explain to the student that companies pay their employees in different increments of time. Payments are consistently provided on a monthly, bi-monthly, weekly, or bi-weekly basis. The most common pay period is bi-monthly, meaning the employee is compensated every two weeks for the completed work. Ensure the student understands an employee who is paid more frequently is not necessarily making a higher income.
Additionally, a salaried employee will receive the same amount for each paycheck, while an hourly employee’s compensation varies depending on the number of hours worked within the pay period.
“In the past, wage earners gave a percentage of the previous year’s income to the government every March 15th. The current method the federal government uses to collect income tax is to acquire it from taxpayers as it is earned, before it reaches the hands of the wage earners. The amount taken from each paycheck is dependent on how the taxpayer filled out the W-4 form, which is a standard employment form. The W-4 tells the employer how much income to withhold based on the taxpayer’s number of jobs and dependents. The employer withholds the income tax from the employee’s paycheck and sends it to the federal government. Now at tax time every year (April 15th), the taxpayer fills out a tax return that will determine if he or she either owes money (if not enough income tax was withheld during the previous year) or is entitled to a refund (if too much money was withheld during the previous year).”
Additional Withholdings to Address
- State Income Tax: All but seven US states require a percentage of your income for state-run projects and programs.
- Federal Insurance Contributions Act (FICA): The FICA tax is required to fund two taxes, Social Security and Medicare, that benefit retirees, persons with disabilities, and children of deceased workers. The Social Security tax pays for the retirement and disability benefits received by millions of Americans each year. The Medicare tax helps to pay for the federal health insurance program for persons age 65 and older, certain younger people with disabilities, and persons with permanent kidney failure. A percentage of your income (up to approximately $113,000) is withheld for these taxes and benefits.
Review an accessible W-4 with the student.
“Additional funds that may be deducted from gross pay include the cost of health and life insurances, as well as retirement contributions.”
- Short-Term Disability: Short-term disability will pay a portion of your salary after you run out of sick leave if you have to be out of work.
- Life Insurance: Some employers require their employees to contribute to a life insurance policy. This policy will pay a lump-sum to designated beneficiaries in the event of your death.
- Flexible Spending Account or Health Savings Account: Both of these accounts are set-up for you to add money to (that is not taxed) which can be used to pay for medical expenses.
- 401K: This is a retirement savings plan sponsored by an employer. Workers save and invest a piece of their paycheck before taxes are taken out.
Discussion: Additional Paycheck Information
- If your job provides paid vacation days, your paycheck will likely have a record of expended and saved leave.
- Your paycheck may have a record of your total earnings for the current year.
- If your job has an option for direct deposit, your wage can be directly deposited into your bank account. You will likely receive a receipt with the gross and net pay, withholdings, deductions, and leave record.
“Today we looked at a paycheck and talked about the general information paychecks provide. We learned about pay periods, withholdings based on a W-4, and possible deductions.”
Progress notes, data collection, comments, and modifications: