๐ Understanding Gross Pay vs. Net Pay
Imagine you're running a lemonade stand. The total money you make before paying for lemons, sugar, and cups is like your gross pay. That's the total amount you earn! But you have to pay for those supplies, right? Those payments are like deductions from your paycheck, and what you have left over is like your net pay โ the actual money you take home!
๐ธ Common Deductions Explained
Here are some of the common things that get taken out (deducted) from your gross pay to get to your net pay:
- ๐๏ธ Taxes: The government needs money to pay for things like schools, roads, and emergency services. So, a portion of your earnings goes towards income tax (federal and sometimes state or local).
- ๐ก๏ธ Social Security & Medicare: These are also taxes, but they go towards specific programs. Social Security helps provide income to retired people and people with disabilities. Medicare helps pay for healthcare for older adults.
- ๐ฅ Health Insurance: If you get health insurance through your job, a portion of the cost might be taken out of your paycheck. This helps you pay for doctor visits and other medical care.
- ๐ฐ Retirement Savings: Some people choose to have money automatically put into a retirement account (like a 401(k)) from their paycheck. This helps them save for the future!
๐งฎ Math Example: Calculating Net Pay
Let's say your gross pay is $100.
Here's a simple example of how net pay is calculated:
| Item |
Amount |
| Gross Pay |
$100.00 |
| Federal Income Tax |
-$10.00 |
| State Income Tax |
-$5.00 |
| Social Security |
-$6.20 |
| Medicare |
-$1.45 |
| Health Insurance |
-$5.00 |
| Net Pay |
$72.35 |
So, your net pay is $72.35. You see how it's less than the gross pay because of all the deductions!
โ Practice Quiz
Test your knowledge! Try these questions:
- โ What is the difference between gross pay and net pay?
- ๐ฆ List three common deductions from a paycheck.
- โ If your gross pay is $200 and your total deductions are $50, what is your net pay? (Remember, Net Pay = Gross Pay - Deductions). Write out the formula you used: $Net\ Pay = $Gross\ Pay - $Deductions$
- ๐ก Why are taxes deducted from your paycheck?
- ๐ฉบ Why might health insurance be deducted from your paycheck?
- ๐ด๐ผ Why would someone choose to have retirement savings deducted?
- ๐ Can you name one thing YOUR family pays taxes for in your community?