Take-Home Pay: Required Deductions
Federal Insurance Contributions Act (FICA)
A federal law that requires all employers to withhold 6.2% of an employee's pay for Social Security and 1.45% for Medicare.
Social Security
A form of government insurance that pays benefits to disabled, elderly, and unemployed persons. It is funded through Social Security tax that all employers and employees must pay.
federal income tax
A government-imposed fee on all individuals' and corporations' income.
Individual income tax
A percentage of an individual's earnings that must be paid to the government. Example: Social Security Tax/Medicare Tax (FICA), or federal tax
Flat tax
A tax with a constant or fixed rate.
Medicare
A type of health insurance managed by the government that is available to citizens who are 65 years of age or older, as well as certain younger people with disabilities. It is paid for the the Medicare tax, which is collected as part of income tax.
Progressive tax
A type of in which people and businesses with higher incomes pay higher taxes.
State income tax
Income tax collected by states, as opposed to the federal government. Not all states collect this type of tax.
Required deductions
Money an employer is legally required to deduct from an employee's paycheck.
Take-home pay
The amount of money an employee receives after all deductions have been taken out.
Net income
The amount of pay that is left after all deductions are subtracted.
Gross income
An individual's total pay before any money is deducted. Example: John makes $15/hour and has worked for 10 hours. His gross pay is $150 ($15 x 10)
Tax brackets
Ranges of income, each taxed at a specific rate.
