Module 6: Taxes & Paychecks
Understand your paycheck and keep more of what you earn
If inflation is "normal," why does it feel like a silent pay cut?
Your salary stays the same, but everything costs more. You're working the same hours but can afford less. Why?
Where Your Paycheck Goes
Gross Pay vs Net Pay
Gross Pay: What your employer says you make (before anything is taken out)
Net Pay (Take-Home): What actually hits your bank account
The difference? Taxes, benefits, and other deductions.
What Gets Taken Out?
Federal Income Tax: Goes to IRS. Progressive rates (10-37%)
State Income Tax: Varies by state (0-13%). Texas, Florida, Nevada have 0%
FICA (Social Security + Medicare): 7.65% total
- Social Security: 6.2% (up to $168,600 in 2024)
- Medicare: 1.45% (no limit)
Benefits: Health insurance, 401(k), etc. (voluntary but common)
Paycheck Breakdown Calculator
See Where Your Money Goes
How Tax Brackets Really Work
The Biggest Tax Myth
Myth: "If I make $1 more and move into a higher tax bracket, I'll lose money!"
Reality: Only the dollars ABOVE the bracket threshold are taxed at the higher rate.
Tax brackets are MARGINAL, not flat.
2024 Federal Tax Brackets (Single Filer)
Example: $60,000 Salary
If you make $60,000, here's how you're taxed:
- First $11,600 @ 10% = $1,160
- Next $35,550 ($11,601-$47,150) @ 12% = $4,266
- Next $12,850 ($47,151-$60,000) @ 22% = $2,827
Total federal tax: $8,253 (13.8% effective rate, not 22%)
W-4 Form: Getting Your Withholding Right
What is a W-4?
Form you fill out when starting a job. Tells your employer how much tax to withhold from each paycheck.
Goal: Break even at tax time (not owe, not get huge refund)
The Refund Trap
Many people celebrate big tax refunds. This is backwards.
A $3,000 refund means: You gave the government an interest-free loan of $250/month all year
Better approach: Adjust W-4 so you break even, keep that $250/month to pay off debt or invest
When to Update Your W-4
- Got married or divorced
- Had a child
- Bought a house (mortgage interest deduction)
- Started a side hustle (need to withhold more)
- Got a big raise
- Owed taxes or got huge refund last year
💡 TikTok says "write it off!" — but do you know what that actually means?
Quick scenario showing the math of tax deductions vs credits
Who wins first when new money is created?
Central banks and governments create trillions. But who gets to spend that money first, before prices rise? It's not you.
Common Paycheck Deductions: Worth It or Not?
401(k) Contributions ✅ WORTH IT
Why: Tax-deferred growth + employer match is free money
How much: At minimum, contribute enough to get full employer match
Example: If employer matches 50% up to 6%, contribute 6%
Health Insurance ✅ USUALLY WORTH IT
Why: Employer plans are cheaper than individual market
Warning: High-deductible plans can be traps if you get sick
Tip: Compare deductible vs premium. Healthy? High-deductible + HSA might save money
Flexible Spending Account (FSA) ⚠️ BE CAREFUL
Pro: Pre-tax money for medical expenses
Con: "Use it or lose it" - money disappears if not spent by year end
Tip: Only contribute what you KNOW you'll spend (glasses, prescriptions, etc.)
Supplemental Life/Disability Insurance ⚠️ MAYBE
Employer basic coverage: Usually free or cheap - take it
Supplemental coverage: Often overpriced. Shop outside employer first
Scenario: Tax Time Surprise
You file your taxes and...
You're working two jobs and didn't adjust your W-4 at either one. Now it's April.
📈 Beyond paychecks: What happens when you sell investments?
Short-term vs long-term, cost basis, and when taxes are triggered
What am I supposed to do if my salary cannot outrun prices?
If working harder doesn't help, and your paycheck buys less every year... what choices do you actually have? This is why Module 7 (investing) matters.
Check Your Understanding
Module 6 Complete! 🎉
You now understand your paycheck and how to keep more of what you earn.