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K12 LibreTexts

5.1: Your Paycheck and Taxes

  • Page ID
    6997
  • Your Paycheck & Taxes

    Universal Generalizations

    • Government taxes both individuals and companies to generate revenue for government programs and expenditures.
    • Depending on where you live, taxes may be higher or lower.
    • Cost of living takes into account the ratio of taxes you may have to pay.
    • Everyone pays some form of taxes on earned income.
    • Failure to pay taxes on earned income can lead to a fine or jail time.

    Guiding Questions

    1. How are federal income taxes assessed?
    2. What are other types of taxes a person may have to pay?
    3. What is the main function of the Internal Revenue Service?
    4. How can politics influence tax laws?

    Earning Power

    Read the module titled Earning Power: More than a Paycheck.

    Read this brief article from Market Business News titled What is Earning Power?

    Read this brief article from The Mint titled How to Decode Your Paycheck.

    Visit this Khan Academy link titled Anatomy of a Paycheck and view the video to learn more about understanding your paycheck.

    Real World: Will you make Wise Decisions?

    Complete the two learning extension assignment's below according to your teacher's instructions.

    Learning Extension #1 - Peter's Choices

    3553678-1556673995-6904917-42-pencil-clipart-classroom-14.jpgLearning Extension - Peter's Choices

    Peter is a high school senior student at the beautiful school of El Paso High School, and he is thinking about his future. He could drop out and not finish high school, he could graduate from high school obtain his high school diploma and not enroll in college, or he could graduate from high school and go to college.

    To make his decision he is looking into the job market. He is looking at the minimum requirements for different job positions and the minimum wage for each of them. Following is a list with the information that he found of different possible job positions based on requirements and offer salaries:

    • High School Custodian: Salary $ 8.12 per hour, 40 hours per week. Assume 52 weeks per year. This job requires a High School diploma TAX: 2078
    • Crew person at Mc Dowels: Hourly salary rate: $ 7.40, assume 52 weeks. No high school diploma is required, Flexible shift, full time is 40 hours per week. 15692 TAX:1898
    • Customer Care Representative: gross annual salary $ 22,000.00 high school and an associate degree is required. Tax: 2850
    • Financial analyst: Bachelors degree required. Annual gross salary starting at $61 000.TAX: 11 163

    Help Peter to make the best decision for his future.

    1. Complete the following table:
      Job Position: Mc Dowel's School Custodian Customer Care Representative Financial Analyst
      Salary: $7.40 $8.12 $22,000.00 $61,000.00
      1. Gross Annual Income:
      2. Taxes:
      3. Net Annual Income:
      4. Monthly Income:
      5. Total monthly expenses:
      6. Net monthly salary:
    2. How can we calculate the gross annual income for the Mc Dowel's and Custodian positions? Is it necessary to make any calculations to find the gross annual income for the customer care and financial analyst job positions? Record the answers in the table in row number 1.
    3. Calculate the deductions and taxes. The Social Security deduction is 6.2% of the gross annual income, Medicare is 1.45% of the gross annual income, and finally assume 15% of gross annual income to pay for federal and state taxes. Write your answer in the table in row 2.
    4. Calculate the Net Annual Income for each job position and record your answer in row number 3. (Hint: the Net annual income, is the income received after paying taxes, and deducting social security and medicare)
    5. Calculate the monthly income for each position using the Net annual income (the after taxes income), and record your answer on the table row 4.
    6. What would be the best option at this point for Peter? Why?

      Peter calculates that he would need to pay the following basic monthly expenses if he wants to move out of his parent's house:

      Category Budgeted Amount per month ($)
      Rent 663
      Utilities (water, gas, electricity) 150
      Internet connection 50
      Cell phone 60
      Car loan payment 289
      Gasoline 120
      Entertainment 300
      Clothes 50
    7. With the information above, calculate Peter's monthly expenses and record your answer in row 5 in the table.
    8. Would Peter be able to meet his expenses with the Mc Dowels salary?, the school custodian salary?, with the customer care salary?, and with the financial analyst salary?
    9. If Peter wants to move out of his parent house, what advise would you give him?

    Learning Extension #2 - More Choices

    3553678-1556673995-6904917-42-pencil-clipart-classroom-14.jpgLearning Extension - More Choices

    Lana is a senior in a high school. She is browsing the job market to help her make a decision. She found the following jobs:

    • A Burger Queen crew member, job that pays $ 5.50 per hour (assuming 40 hours per week and 52 weeks per year)
    • A Wall's Mart cleaning crew person, position that requires a high school diploma, and pays $8.20 per hour. Also assume 40 hours per week.
    • A Financial consultant, position that requires a college degree, pays $43,000 salary per year with no experience required.
    1. Assuming Lana needs to pay federal taxes for 30.5% of the gross monthly salary of each job previously described, and that she won’t need to pay for benefits; complete the following table:
      Burger Queen Wall's Mart cleaning crew Financial advisor
      Income information
      Gross annual income
      Gross monthly income
      After-tax monthly income
    2. Mary Ann is single and just started her first full time job. Her monthly after taxes income (after taxes and deductions had been withheld) is $2 589.10. She wants to save 10% of her monthly income. Construct a budget table and determine if she would be able to save 10% of her after tax monthly income, if her monthly expenses are: rent $790, cell phone $75, utilities $45, cable TV and internet $65, groceries $450, entertainment $250, car payment $350, and gasoline $120.
    3. Research the cost of living in your community and create a budget table with the information gather. Consider prices of rent, utilities, groceries, car payments, etc. Search also the annual income per capita in your area.

    Video: What You Can do Now to Prepare for Your Future

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