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Understanding Take-Home Pay: Calculations, Raises, and Cafeteria Plans

In this chapter, learn how to calculate your take-home pay as a percentage of gross pay. Discover the effects of raises on your income and deductions, as well as how a cafeteria plan can lead to potential tax savings. This guide will walk you through the steps to determine your net income after deducting taxes, insurance, and other benefits. Gain insight into how raises impact your deductions and explore what items you can deduct from your taxable income using pre-tax dollars, ultimately saving you money.

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Understanding Take-Home Pay: Calculations, Raises, and Cafeteria Plans

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  1. Chapter 2, section 2-5 Analyze Take-Home Pay

  2. I can… • Calculate take-home pay as a % of gross pay. • Calculate the impact of a raise on take-home pay. • Calculate potential tax savings of a cafeteria plan.

  3. So what % of my gross pay do I actually get to take home? • Step 1: Add up all deductions (taxes, insurance, etc) • Step 2: Subtract deductions from gross pay • Step 3: Calculate the % by dividing Gross pay-deductions Gross pay • Example 1, p. 64 • Check your understanding A & B

  4. How does a raise impact my gross pay? • Raises can be expressed as an increase in a dollar amount per hour, per pay period OR • An increase per year OR • As a % of the current gross pay • When you get a raise it also impacts your deductions. When you make more money…more money comes out for taxes! • Example 2, p. 65 • Check your understanding C & D

  5. What’s a cafeteria plan? • It’s really called a Section 125 plan. It’s nicknamed a cafeteria plan because employees can choose which items they want to participate in—much like a lunch line in the cafeteria.

  6. So what’s the purpose of a cafeteria plan? • It allows employees to deduct a certain amount of money from their wages before it’s taxed! • By doing so this lowers the amount of your taxable income. Lower taxable income = lower taxes!

  7. What types of things can you deduct with pre-tax dollars? • Health or life insurance premiums • Child care • Healthcare expenses (doctor visit co-pays, prescriptions, OTC drugs) • Example 3, p. 66 • Check your understanding E & F

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