Guided practice calculating net pay with various employee scenarios
Guided Practice: Multiple Employees, Multiple Deductions
Now let's apply the deduction procedure to three different TechStart employees. Each has a different situation— watch how the deductions add up differently. We'll also add a voluntary retirement contribution.
Data: Maya works 80 hours at $18/hour. Single, 0 allowances on W-4. No voluntary deductions.
Calculate step by step:
- Gross Pay: 80 × $18 = $1,440
- Federal Tax: ~$95 (based on withholding table)
- Social Security: $1,440 × 6.2% = $89.28
- Medicare: $1,440 × 1.45% = $20.88
- Net Pay: $1,440 - $95 - $89.28 - $20.88 = $1,234.84
Data: James earns $4,000/month salary. Married, 1 allowance. Contributes 5% to 401k.
Calculate step by step:
- Gross Pay: $4,000 (monthly)
- 401k Contribution: $4,000 × 5% = $200 (pre-tax)
- Taxable Income: $4,000 - $200 = $3,800
- Federal Tax: ~$280 (on $3,800 taxable)
- Social Security: $4,000 × 6.2% = $248
- Medicare: $4,000 × 1.45% = $58
- Net Pay: $4,000 - $200 - $280 - $248 - $58 = $3,214
Key Point 401k reduces taxable income! James saves by contributing before taxes.
Data: Luis works 30 hours at $3.00/hour (server) plus $220 in tips for the period. Single, 0 allowances.
Calculate step by step:
- Cash Wage: 30 × $3.00 = $90
- Tips: $220
- Gross Pay (for tax purposes): $90 + $220 = $310
- Federal Tax: ~$0 (low income)
- Social Security: $310 × 6.2% = $19.22 (employer matches)
- Medicare: $310 × 1.45% = $4.50 (employer matches)
- Net Pay: $310 - $19.22 - $4.50 = $286.28
Tipped Worker Note Tips are taxable income! The employer must report tips and withhold appropriate taxes.
| Employee | Gross | Net Pay | Emp. SS+Med | Total Cost |
|---|---|---|---|---|
| Maya (Hourly) | $1,440 | $1,234.84 | $110.16 | $1,550.16 |
| James (Salary) | $4,000 | $3,214 | $306 | $4,306 |
| Luis (Tipped) | $310 | $286.28 | $23.72 | $333.72 |
Sarah must budget for Total Cost, not just gross pay. The employer portion is real money!
Compare your calculations with a partner:
- Did you handle the 401k pre-tax deduction correctly for James?
- Did you include tips in Luis's gross pay?
- Do your employer cost totals match?
- Explain to your partner: Why does the employer pay more than the employee's gross?