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Real Stories

Where Does Your Paycheck Go?

Materials Needed: Sample pay stubs showing deductions

Prior to beginning this activity the facilitator should obtain and copy some real or facsimile pay stubs to use.

Facilitator Tip: Be sure to cross out or cover up personal information on the stubs, such as Social Security numbers and names.

The facilitator should begin this activity by asking the following questions:

  1. If you are employed by a company, why does your paycheck not reflect your actual earnings? In other words---why is a person's take-home (net) wages so much less than his gross wages?
  2. If you are self-employed, who has the task of managing various tax responsibilities?

Distribute copies of sample pay stubs. Ask participants to examine the categories of taxes withheld. Identify and review with participants: federal withholding, state withholding, Social Security and Medicare.(Special note: some employers combine Social Security and Medicare deductions.)

Determine what percentage of the gross pay is taken by just these deductions. (Add all the deductions to get a total. Put that total in the numerator and the gross wages in the denominator. Divide the numerator by the denominator. Your answer is the percent taken by taxes.)

The facilitator should conclude this activity with the following:
Emphasize that when making a personal spending plan, net wages should be considered, not gross wages.