CNN Student News
CNN Student News
April 27, 2011
April 27, 2011
(CNN Student News) -- April 27, 2011
Find out where the money goes when it's deducted from your paycheck
Shoutout Extra Credit
TOMEKA JONES, CNN STUDENT NEWS:
Time for a Shoutout Extra Credit! Which of these words describes money that's taken out of your paycheck? Is it: A) Commodity, B) Deduction, C) Entitlement or D) Subsidy? Another three seconds on the clock -- GO! When money comes out of your paycheck, it's called a deduction. That's your answer and that's your Shoutout Extra Credit!
Your First Paycheck
I remember my very first job was as a grocery store bagger, and I also remember being amazed at the amount of deductions coming out of my first paycheck. Any of you with jobs have probably noticed this. It brings up a lot of questions. One of them: If money's being taken out of your paycheck, where is it going? What is it being used for? Is there any chance that you'll get any of that back? We're gonna answer some of those questions today in our last report wrapping up Financial Literacy Month. Earlier this week, I talked with CNN's Ben Tinker about what comes out of your paycheck when you get paid.
BEN TINKER, CNNMONEY.COM:
Carl, I remember how excited I was to get that first job, but I also remember being pretty surprised when I got that first paycheck. That's because until you actually see those numbers in black and white on your pay stub, you can't really have a good understanding of just how much cash is being taken out before the money ever reaches your bank account.
So, when you look at how much money you make, there are two terms you want to pay really close attention to. Number one is gross income. That's what you earned before any deductions. This is also what the advertised salary for your job is going to be. But net income, also known as take home pay, is, well, what you're actually taking home after all the taxes, deductions and other withholdings. Carl?
So Ben, what exactly is being taken out of our paychecks?
Well, the biggest chunk of your paycheck is going to FICA, which stands for the Federal Insurance Contributions Act. And that goes to fund things like Social Security and Medicare. But, you won't be needing these things for a really long time, of course. The government, though, needs that constant flow of money from all taxpayers to churn it back out to those who have aged into those programs.
You might also be losing out some wages to state income taxes, which go to pay for things like government workers and government projects. Your job might require you to pitch into insurance coverage. And last but not least, though this may be a few years down the line, retirement savings.
Carl, the nice thing about it is that you actually get to set money aside on a pre-tax basis, which'll bolster your savings in the long run. Unfortunately, that paycheck is just so much more than a check. Lots of itemized deductions and money coming out, but still lots left over to go in to your pocket. Carl?
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