Chapter 18. Paychecks & Withholding (understanding a pay stub, taxes)

My Name is George Eastman: Founder of Kodak

I was not born into wealth, nor did I inherit a fortune. My story begins in Waterville, New York, in 1854. My father died when I was still a boy, leaving my mother, two sisters, and me to fend for ourselves. From that moment on, every dollar mattered, every opportunity was measured by how much effort it took to earn it. My journey was one of saving pennies, learning patience, and refusing to give up when the world seemed to give me nothing.

Early Struggles and First JobsAfter my father’s death, our family’s small business failed, and I had to leave school at fourteen to support us. I began as a messenger boy in an insurance office, earning just a few dollars a week. Later, I became a clerk at the Rochester Savings Bank, where I handled other people’s money while barely earning enough to keep my family fed. Each payday taught me the value of steady work and the discipline of budgeting what little came my way. I learned to stretch a small income into survival and to find pride in being reliable, even when the work was dull.

A Spark of CuriosityWhile working at the bank, I saved my wages carefully. I dreamed of travel, but even a simple trip required months of saving. When I finally planned a trip to Santo Domingo, I bought a camera to document it—a heavy, awkward contraption that required a tripod and wet plates. I never took that trip, but the camera changed my life. I realized how complicated photography was, and I began experimenting in my mother’s kitchen at night. My paycheck by day supported my dream by night. It was slow progress, but every dollar earned and saved brought me closer to something new.

Building an Idea into a BusinessWhen I finally perfected a dry plate process, I began selling my invention while still working at the bank. It wasn’t glamorous. I worked late hours, faced endless rejection, and invested nearly every cent of my wages into chemicals, glass, and equipment. Most people laughed at the idea that photography could ever be simple. But I believed in making it accessible to everyone. The phrase I later made famous—“You press the button, we do the rest”—was born from those long nights of trial and failure.

Fighting Opposition and Self-DoubtMany doubted me, even after Kodak began to take shape. Competitors mocked my ideas, and investors hesitated to trust a man with no college degree or formal training. I faced lawsuits, mechanical failures, and financial risk at every turn. But I remembered those early years counting coins with my mother at the table, deciding what bills we could pay that week. I knew that success didn’t come to the most privileged, but to those who refused to quit. I learned to take each setback as part of the cost of progress—another kind of tax on ambition.

Reward for PerseveranceAs Kodak grew, I never forgot the lessons of those first paychecks. I treated my employees fairly and offered them benefits long before it was common. I introduced profit-sharing and retirement funds because I knew the struggle of earning every cent. I wanted my workers to feel the dignity of stability, the same dignity I had longed for as a boy. When I saw their relief on payday, I saw my own younger self reflected back at me.

The Legacy of Labor and VisionWealth came later, but it never meant as much as the journey. My real success was turning an idea born in poverty into something that enriched others. I started with nothing but persistence and a belief that effort must have purpose. I fought through failure, lived through scarcity, and learned that even the smallest paycheck could fund the greatest dreams if used wisely.

I built Kodak not just to sell cameras, but to prove that anyone—no matter how humble their beginnings—could capture the light of their own ambition. My life is a photograph of endurance, framed by hard work and illuminated by hope.

The Anatomy of a Paycheck / Pay Stub – Told by George Eastman

When I was a young man, long before I built Kodak, I worked behind the counter at a bank, sorting deposits and managing the smallest sums of other people’s earnings. I saw countless pay stubs pass through my hands — each one telling a story of someone’s labor. Today, I want to teach you what those small slips of paper really mean, for they are the first step toward understanding your financial future.

The Header: Who You Work For and Who You Are

Every paycheck begins with identity. At the top, you’ll find the name of your employer — the company or organization that issues your pay. This might be a small local business or a large corporation. Beneath that sits your name, your address, and sometimes your employee number or Social Security number. This section connects your work to your person, proving that your hours, effort, and wages are formally recognized. In my early banking days, I learned that every paycheck was more than a number — it was a record of dignity, of honest labor tied to one’s name.

The Pay Period: Measuring Your Time and Value

Next, every pay stub marks the pay period — the range of dates that your earnings cover. Some are weekly, others biweekly, and salaried employees may be paid monthly. This section teaches you to track your rhythm of income. If you work hourly, your pay period directly reflects the time you’ve given. When I was a young bank clerk, we recorded hours with exacting precision; it was the measure of fairness between employer and employee. Understanding this helps you know when to expect your next payment and how much work it represents.

Hours Worked and Rate of Pay

For hourly workers, these numbers are crucial. You’ll see how many hours you’ve worked — regular hours, overtime, and sometimes special shifts at a different rate. The rate of pay is the amount you earn per hour, like $15.00 or $22.50. Multiply that rate by your hours, and you’ll see your gross earnings before any deductions. Salaried workers, on the other hand, see their fixed pay for the period, whether they worked forty hours or fifty. When I hired my first employees at Kodak, I learned the importance of being transparent about these numbers. Fairness starts with clarity.

Gross Pay: The Full Reward Before Deductions

Your gross pay represents your total earnings before taxes or benefits are taken out. Think of it as your unpolished diamond — valuable, but not yet refined. It’s what you’ve earned based purely on your work, your time, and your agreed rate. This is the figure you’ll see before government withholdings, insurance premiums, and retirement contributions. In business, I often reminded my bookkeepers that the gross amount reveals the true scale of productivity, but the net amount reveals a worker’s reality.

Taxes and Deductions: The Invisible Portions of Your Labor

Once you understand your gross pay, you must face the deductions — and this is where many young workers feel the first sting of adulthood. Federal and state taxes come first, followed by Social Security and Medicare. These are mandatory withholdings, supporting both your government and your future. Beyond these, you may find deductions for health insurance, life insurance, or retirement plans such as a 401(k). When I built Kodak, I wanted to offer benefits that would help employees long after payday — and that required these line items. Each deduction, though it shrinks your immediate earnings, represents a contribution to security, health, or community.

Net Pay: What You Actually Take Home

After every deduction, what remains is your net pay — your true take-home income. This is the amount deposited into your account or printed on your check. It’s what you live on, what you budget with, and what you can save or spend. Early in my life, I learned that success came not from how much I earned, but how much I kept and used wisely. Understanding net pay is understanding your limits and your opportunities.

Year-to-Date Totals: Your Financial Progress Report

Most pay stubs also include YTD — year-to-date figures — showing how much you’ve earned and paid in taxes or deductions so far this year. This running total teaches you to see the long view, not just the single paycheck. When I was developing film, I realized that a single photograph tells one moment, but a full roll tells a story. So too does your year-to-date summary — it shows your progress, your growth, and how consistent you’ve been in earning and managing your money.

Comparing Hourly and Salaried Pay

For an hourly worker, the paycheck changes with every shift — more hours, more pay; fewer hours, smaller income. It teaches discipline, for income depends directly on time worked. Salaried workers, however, earn the same amount regardless of small fluctuations in hours. This stability comes with responsibility; the work must be consistent, and the results must justify trust. Both forms of pay have value, but understanding how each affects your deductions, taxes, and long-term planning is essential.

The Bigger Picture: The Paycheck as a Mirror of Effort and System

A paycheck is more than numbers on paper — it is a compact between worker, employer, and society. Every line shows the exchange of labor for value, the balance between individual effort and collective responsibility. When I started out, I looked forward to payday as proof that my time meant something. As an employer, I later saw each paycheck as a reflection of trust and stewardship.

Final Thoughts: The First Step Toward Financial Mastery

Understanding your pay stub is like learning to read the language of your own labor. You can’t master money until you understand where it comes from, how it’s measured, and where it goes. Each number has meaning — hours reflect time, deductions reflect responsibility, and net pay reflects opportunity. My success with Kodak began not with wealth, but with awareness — awareness of how every cent moved, where it was earned, and how it could grow.

So, study your pay stub carefully. It is your first financial report card, your silent mentor, and your bridge between effort and achievement.

Gross Pay vs. Net Pay – Told by George Eastman

When I first began earning wages as a young bank clerk, I learned that the number printed on a paycheck did not tell the whole story. The total amount one earns and the portion one actually takes home are rarely the same. This difference, though simple in appearance, is one of the most important financial lessons a person can learn. It is the difference between potential and reality, between what you make and what you truly live on.

Understanding Gross Pay: The Promise of LaborGross pay is the full amount of money an employer agrees to pay for your work before anything is taken away. It is the value of your labor measured in its purest form. For hourly workers, this is calculated by multiplying the number of hours worked by the hourly rate. If you earn $20 an hour and work 40 hours a week, your gross pay is $800. For salaried employees, gross pay is the total portion of your annual salary divided into pay periods. If you earn $60,000 a year and are paid monthly, your gross pay is $5,000 each month.

When I was managing the early finances of Kodak, I often thought of gross pay as a contract of trust. It represents what you agreed upon with your employer, the reflection of your skill, effort, and value to the company. It is a number that can inspire pride, but it is also a reminder that your work serves both you and the larger society. The money you see before deductions is only the beginning of what that paycheck truly means.

The Reality of Deductions: Where the Money GoesThe first time I saw my own deductions listed, I felt the same sting that many workers still feel today. From that perfect, round total came reductions — for taxes, insurance, and contributions. At first, these deductions may seem like money lost, but in truth they are part of the fabric that sustains modern life. Federal and state income taxes go toward maintaining the infrastructure we depend on. Social Security and Medicare ensure that citizens, including you someday, have support in times of age or need.

Other deductions may include health insurance, retirement savings, or charitable contributions you’ve chosen to make automatically. When I began paying my own employees at Kodak, I made it a point to show them these line items clearly. I wanted each worker to understand that while these amounts reduced their immediate take-home pay, they were not disappearing—they were being transformed into benefits, protections, and future security.

Understanding Net Pay: The Take-Home TruthOnce those deductions are applied, what remains is your net pay. This is the amount you actually receive in your hand—or, in modern times, the amount that appears in your bank account. It is your true earning power, the figure you must build your budget around. Many young workers make the mistake of planning their spending around gross pay, only to find themselves short when reality arrives. The wise worker builds his life around his net pay—the reliable, predictable portion that can be spent, saved, or invested.

When I was young and saving every dollar for my photographic experiments, I focused on what I truly had, not on what I wished I had earned. Each month, I wrote down my net pay and divided it carefully: a portion for my mother’s household, another for living expenses, and the rest for my experiments. By respecting that number, I was never in debt, and my ambitions never outpaced my reality. Net pay, you see, is where discipline meets progress.

How Gross Becomes Net: A Simple TransformationThink of your paycheck as a river flowing from your work into your life. The gross pay is the full stream at its source—strong and unbroken. But along the way, small channels branch off, carrying water to irrigate the fields of society: taxes to the government, premiums to your insurance, savings to your retirement. What remains at the end of that journey is your net pay, the stream that reaches your home and nourishes your daily living. Without those diversions, others would suffer, and eventually, so would you.

In practice, your pay stub will list these amounts clearly: gross earnings, itemized deductions, and net pay at the bottom. The relationship between them is simple arithmetic, but understanding it gives you the power to manage your future. When you can read that relationship, you can predict your true income, avoid overspending, and plan for the unexpected.

Learning to Think Beyond the NumbersToo many people see deductions as something taken from them rather than something invested for them. I used to remind my employees that taxes fund the roads they traveled on, the schools their children attended, and the safety systems that kept our community strong. Similarly, retirement contributions were not burdens, but seeds planted for a secure old age. The key to mastering money is learning to see value not just in what you keep, but in what your earnings build for others.

A Lesson from My Own ExperienceWhen Kodak began to succeed, I still lived with the same frugal habits I learned as a young man. I knew my company’s gross income, but I never confused it with profit. The same truth applies to personal finance: gross pay is not yours to spend freely; it is the total weight of your effort before obligations are met. Net pay is the measure of what you’ve earned after honoring your responsibilities. Success in business or in life requires seeing the difference clearly and respecting both sides of that equation.

The Balance Between Aspiration and RealityUnderstanding the difference between gross and net pay helps you balance your hopes with your means. Your gross pay represents the potential of your work; your net pay represents the real foundation upon which you can build. The more clearly you understand both, the stronger your financial life will be. Whether you earn wages from a single job or manage an entire enterprise, this truth remains constant: money that is managed wisely, even in small amounts, becomes freedom.

So remember this—your paycheck tells two stories. The first, written in gross pay, is about your ability to produce and create value. The second, written in net pay, is about how you live within your means and prepare for tomorrow. Both stories matter. One is the measure of your work; the other, the measure of your wisdom.

Common Deductions – Told by George Eastman

When I first began employing people at Kodak, I quickly learned that paying someone fairly meant more than handing them a full sum of money. A paycheck represents not just the work completed, but also the shared responsibilities between a worker, their employer, and the society they both belong to. Each deduction on a pay stub tells a story—of contribution, protection, and preparation for the future. Allow me to walk you through these deductions, just as I once explained them to my employees when Kodak was still growing.

Federal Income Tax: Supporting the NationThe largest and most noticeable deduction on most paychecks is the federal income tax. This portion is collected by the United States government and used to fund everything from national defense to education and transportation. When I first built my company, I came to appreciate that this was not a punishment but a partnership. The roads that delivered our goods, the mail system that carried our letters and orders, and the stability of law that protected our patents—all were made possible by taxes. Each worker who paid federal income tax was, in truth, helping to maintain the very system that made employment possible.

State Income Tax: Building Local StrengthIn addition to federal taxes, most states require an income tax. When I lived and worked in New York, I saw how these funds built schools, paved roads, and kept our communities safe. I used to remind my workers that while the federal government handled national concerns, their state taxes stayed close to home. These deductions helped fund public health, local education, and community growth—things that made Rochester not just a place to work, but a place to live and raise families.

Social Security (FICA): A Promise for TomorrowWhen I was a young man, there was no Social Security system. Many workers grew old and poor, relying only on their savings or their children for support. I had seen that hardship firsthand, and when the idea of Social Security later became part of the American system, I would have supported it wholeheartedly. This deduction ensures that workers have financial assistance when they retire or if they become disabled. It is a form of shared security—each worker contributes a small portion of their wages now to ensure that they, and others, can live with dignity later.

Medicare (FICA): Health in Later YearsAlongside Social Security came Medicare, which provides health coverage for citizens once they reach retirement age. Though it was introduced after my lifetime, the principle was one I believed in deeply. At Kodak, I established one of the earliest employee health programs because I understood that illness could destroy both families and productivity. A small deduction during one’s working years ensures that healthcare remains available in the years when it’s most needed.

Retirement Contributions: Planning Beyond the PaycheckDuring my years as an employer, I insisted on creating opportunities for my workers to save for retirement. In an age before modern 401(k)s, we had pension programs—funds into which both the employee and the company contributed. I believed that a company’s duty extended beyond the factory gates. Retirement contributions, whether through modern plans or older pensions, represent foresight. They are voluntary or partially matched, but they remind every worker to prepare for the day when they no longer earn a paycheck.

When I first introduced these programs, some workers hesitated, thinking that saving meant losing money now. But I explained that it was not a loss—it was a transfer from today’s comfort to tomorrow’s peace of mind. I would tell them, “Your future self will thank you for every dollar you set aside today.”

Health, Dental, and Vision Insurance: Protection Through PartnershipOne of the greatest achievements of any workplace is to safeguard the well-being of its people. At Kodak, I was proud to provide health benefits long before many companies considered such things necessary. The cost was shared: the company paid a portion, and employees paid the rest through small deductions. Health insurance protected families from the crushing burden of medical bills. Dental and vision insurance, often considered optional, helped workers maintain their quality of life. Each of these deductions represented an agreement between the employer and the employee—to share in the responsibility of care.

Union Dues: Collective StrengthThough Kodak was not heavily unionized in my early years, I respected the concept of organized labor. Many industries saw unions rise to protect fair pay and safe working conditions. For those who belonged to a union, dues were deducted from each paycheck. These payments supported negotiations, legal representation, and improved labor standards. When a worker paid union dues, they were investing in fairness and unity—a recognition that individuals standing together could achieve what one person alone could not.

Charitable Contributions: Giving Back to the CommunitySome of my employees chose to have charitable donations automatically deducted from their paychecks. I encouraged this practice, for generosity strengthens both the giver and the community. Whether supporting hospitals, schools, or local charities, these deductions reminded us all that the purpose of wealth is not simply accumulation but contribution. I myself gave much of my fortune to universities and cultural institutions because I believed that knowledge and beauty improve the human spirit as much as wages improve daily life.

The Balance Between Responsibility and RewardEach deduction, though it reduces the total amount of take-home pay, carries its own reward. Taxes keep the country strong. Social Security and Medicare secure the future. Retirement and insurance build stability. Union dues and charitable giving strengthen communities. These are not losses—they are investments in shared progress. When I first explained deductions to my employees, I told them that understanding where their money goes is the first step toward mastering their finances. A paycheck does not end with what you earn—it continues in what you build, both for yourself and for others.

The True Value Behind the Pay StubA paycheck may seem smaller once deductions are taken, but its true worth lies in the protection it provides. Every dollar withheld serves a purpose beyond the present moment. It feeds a system that supports you, your family, and your nation. In my experience, the most successful people were those who looked beyond the immediate and saw the structure their contributions created. The same lesson I learned as a young man—patience, foresight, and shared responsibility—applies to every worker who reads their pay stub today.

So when you see those deductions on your paycheck, do not think of them as money lost, but as money transformed—each line a small act of citizenship, a safeguard against uncertainty, and a quiet promise that the labor of today sustains the well-being of tomorrow.

My Name is Mary Kay Ash: Founder of Mary Kay Cosmetics

I was born in 1918 in a small Texas town during a time when few women were expected to work, let alone lead businesses. My father was ill much of my childhood, and my mother worked long hours as a nurse to keep us afloat. I learned early the meaning of responsibility. At seven years old, I was already cooking and cleaning while she was away. From that modest beginning, I discovered that hard work and faith could overcome almost anything. But my journey to success was never easy. It was paved with rejection, failure, and the stubborn belief that I could create something better.

Early Struggles and Learning the Value of WorkMy first real job was selling books door to door. It was not glamorous work, but it taught me persistence. I had no car, no connections, and no training—only a belief that I could earn enough to support myself and my family. Each sale was a small victory, each “no” a lesson in courage. Later, I joined Stanley Home Products as a salesperson, where I discovered that determination and enthusiasm could outshine experience. I earned my way up through sheer effort, proving that even in a man’s world, a woman’s drive could not be ignored.

Climbing the Ladder in a Man’s WorldAs I worked my way through the ranks of sales organizations, I often found myself training men who were later promoted above me. I worked harder, sold more, and earned less. That unfairness became a fire inside me. I realized that success for women was not limited by talent but by opportunity. I vowed that one day, I would create a company where women could be paid what they were worth and recognized for their effort—not their gender.

Saving Every Penny and Taking RisksWhen I lost my second husband unexpectedly, I was left to raise three children alone. I had little money and even fewer options. Every dollar I earned had to count. I saved faithfully, setting aside enough to buy necessities while dreaming of a business I could build from home. My experiences taught me to see money as a tool—not for greed, but for freedom. I knew what it was like to depend on a small paycheck, to see deductions eat away at your hopes, and to feel the burden of providing for others. That reality shaped my approach to every decision I made later in life.

Creating a Business of My OwnAfter 25 years in the sales world, I decided I’d had enough of limitations. I took my life savings—just $5,000—and began writing a business plan at my kitchen table. I wanted to create a company where people were valued first, where success came from lifting others rather than competing against them. That plan became Mary Kay Cosmetics, founded in 1963. I started with a small storefront in Dallas and a handful of women who believed in me. We mixed products by hand, filled jars ourselves, and delivered them with pride. I didn’t have investors or formal backing—only faith, determination, and a clear vision of what women could achieve if given a fair chance.

Fighting Doubt and OppositionMany people told me my idea would fail. Banks refused to take me seriously. Men in business circles laughed at the thought of a woman starting a beauty company from scratch. Even friends questioned whether women would trust another woman as a business leader. But I had lived through worse, and I refused to let anyone’s disbelief define me. I reminded myself of the countless times I had been told “no” and turned it into motivation. I pressed forward, selling products, training others, and building a community that believed in personal growth as much as financial success.

Building Success Through EmpowermentMy business grew not because I was the smartest or richest person in the room, but because I built it around people. I believed that if you treat others with respect and reward them for their hard work, success will follow naturally. I created a system where women could earn based on their effort—where their paycheck reflected their dedication. Every sale, every promotion, and every recognition ceremony carried the message that success was possible for anyone willing to work for it.

Giving Back and Defining True WealthAs the company flourished, my wealth increased—but I never forgot where I came from. I remembered the days when every dollar mattered, when I had to choose between food and rent. I wanted my employees and consultants to see that money is not the ultimate goal—it is a measure of the good you can do. I gave generously to causes that uplifted others, believing that prosperity must be shared to have real meaning.

The Legacy of Perseverance and FaithWhen I look back, I see my life as a journey from struggle to service. I began with nothing but faith and the will to work. Every setback strengthened me, every rejection taught me persistence. I fought prejudice, poverty, and doubt, yet I turned each obstacle into a stepping stone. The money I earned was not just income—it was proof that integrity, faith, and hard work still matter.

I built Mary Kay Cosmetics to give others the opportunity I never had—to work for themselves, to believe in their own worth, and to define success on their own terms. My story is not just about makeup or money. It is about believing that no one’s background or hardship can stop them from achieving greatness if they are willing to rise, work, and never give up on themselves.

Understanding Federal and State Taxes – Told by Mary Kay Ash

When I first began selling products door to door, I quickly discovered that earning money was only half the battle. The other half was understanding how much of that money I would actually keep after taxes. I had to learn not only how to make a sale but also how to manage what the government required me to give back. Whether you are an employee receiving a paycheck or a salesperson earning commissions, taxes affect everyone. Let me help you understand how they work, why withholding is necessary, and how both federal and state taxes shape your income.

The Purpose of Taxes: Why Withholding ExistsTaxes are the price we all pay to live in a society that provides protection, opportunity, and stability. They fund the schools our children attend, the roads we drive on, the police and firefighters who keep us safe, and the programs that help those in need. When I was first starting out, I used to dread tax time. It felt like money I had worked hard to earn was disappearing into thin air. But over the years, I came to see that those deductions were what allowed our country and communities to function.

Withholding is the process by which your employer or your company automatically takes a portion of your income and sends it directly to the government. This ensures that taxes are paid gradually throughout the year rather than all at once in April. For employees, this means that taxes are taken out of each paycheck before you even see the money. For salespeople or those who are self-employed, the process works differently. You must calculate and send in your own estimated taxes each quarter. It requires discipline and foresight, but it teaches responsibility—the very skill that builds success in business.

Federal Income Taxes: The National ObligationFederal income tax is the same across the nation, though the amount you pay depends on your income level. The government uses what is called a tax bracket system. This means that income is taxed in sections or “brackets,” and each section has its own rate. For example, a person might pay 10% on their first portion of income, 12% on the next portion, and 22% on income above that. The more you earn, the higher the percentage applied to the upper portion of your income. This progressive system ensures that those who earn more contribute more to national programs.

When I was managing my company, I always told my sales consultants to think of taxes as a business partner—one who takes a share but also provides the structure we depend on. The federal government uses this money to fund everything from highways and hospitals to the postal service and defense. While it may sting to see those dollars leave your paycheck, it is a sign that your earnings have reached a level worth protecting.

State Income Taxes: Supporting the Local CommunityUnlike federal taxes, state taxes vary depending on where you live. Some states charge high income taxes to fund local schools, healthcare, and infrastructure. Others, like Texas—where I built my business—do not charge a state income tax at all. That difference means that a worker in California might see a larger portion of their paycheck withheld than someone doing the same job in Florida or Nevada. Yet both will still pay federal taxes.

For salespeople, this distinction can be important. If you travel or sell across state lines, you might owe taxes in more than one state. I remember working with consultants in states that handled taxes very differently. Some had to withhold both state and local income taxes, while others only paid federal taxes. Understanding your state’s tax structure isn’t just helpful—it’s essential for managing your finances responsibly.

How Tax Brackets Affect SalespeopleSalespeople often have incomes that fluctuate from month to month. One month may bring high commissions; another may bring very little. This can make taxes more complicated, especially since the federal system uses yearly totals to determine which bracket you fall into. I used to remind my sales consultants not to spend everything they earned during a good month. A portion always belongs to the tax collector.

For example, if a salesperson earns $40,000 one year and $80,000 the next, their federal tax rate will increase because they moved into a higher bracket. However, the higher rate only applies to the income above the previous threshold. That’s why it’s important to track income carefully and plan for withholding or quarterly payments. It’s better to set money aside each month than to be surprised by a large tax bill later.

Withholding for Employees vs. Independent ContractorsEmployees usually have it easier because their employers handle withholding automatically. Each paycheck already accounts for federal and state taxes, Social Security, and Medicare. At the end of the year, they receive a W-2 form summarizing their earnings and the taxes already paid. Salespeople who work as independent contractors, however, receive a 1099 form instead. That means no taxes have been withheld—they must calculate and send their own payments to both the IRS and, if applicable, their state’s tax department.

When I began my own company, I made sure my sales consultants understood this difference. Those working for themselves had to develop strong habits of saving and planning ahead. I encouraged them to set aside a percentage of every sale—sometimes 25% to 30%—in a separate account for taxes. This ensured they would never be caught off guard when tax time came.

Why Both Systems MatterThough federal and state taxes operate separately, they serve the same purpose: to support the people and institutions that make our lives possible. Federal taxes keep the country strong and unified, while state taxes make sure local needs are met. Without either, we would lose the balance that allows communities to thrive and citizens to prosper.

As a businesswoman, I came to respect both levels of taxation. Federal programs gave me the freedom to grow my business across the nation, while state programs helped train and educate the workers who joined me. Each system has its challenges, but both represent a shared investment in our collective success.

Learning to See Taxes DifferentlyThe first time I had to pay a large tax bill, I admit, I grumbled. But then I realized what that payment represented: proof that I had built something successful enough to contribute back. Paying taxes is not a sign of failure—it is a sign of achievement. It means you’ve earned enough to take part in supporting your country and community.

When I taught my salespeople about taxes, I told them to view withholding not as a loss but as a preparation. It protects you from debt later and keeps the system running smoothly. The key is not to fear taxes, but to understand them. Knowledge is the best form of financial freedom.

The Balance Between Earning and Giving BackUnderstanding federal and state taxes helps you plan wisely and appreciate the system that allows you to earn a living. Every dollar withheld is a part of something larger—a shared commitment to progress. Whether you are a factory worker, an executive, or a salesperson striving to build your dreams, knowing how taxes work allows you to take control of your finances and your future.

In my own life, I began with very little and built a business that reached around the world. But I never forgot that success carries responsibility. The money we earn is not just for ourselves—it is a measure of our contribution to others. Paying taxes reminds us that no success is achieved alone. We rise together, building opportunity not just for one, but for all.

Social Security & Medicare (FICA Taxes) – Told by Mary Kay Ash

When I first began building my business, I quickly learned that every dollar earned carried responsibilities beyond the present moment. Some of those responsibilities were to my family, some to my employees, and some to the country that allowed me to pursue my dream. One of the most misunderstood parts of every paycheck is the FICA tax — a deduction that most people don’t fully appreciate until they reach the age when they begin to depend on it. But understanding it now, while you’re working, is the key to preparing wisely for your future.

What FICA Means and Why It ExistsFICA stands for the Federal Insurance Contributions Act. It was created during the Great Depression to ensure that Americans would have some income and healthcare coverage in their later years. This program was designed as a safety net — a way for working citizens to contribute a small portion of their pay throughout their careers, and in return, receive financial help after retirement or if they became disabled.

FICA combines two main programs: Social Security and Medicare. Together, they form the backbone of America’s retirement system. Every paycheck you receive includes a deduction for these programs, even if you don’t think much about it at the time. When I began hiring employees for my company, I made sure they understood what those deductions were for. They weren’t arbitrary or meaningless; they were contributions to their own future.

How FICA Taxes Are Collected and What They FundAs of today, the FICA tax rate totals about 7.65% of an employee’s gross pay. Employers match that amount, contributing another 7.65%, for a total of 15.3%. Of this, 6.2% goes toward Social Security and 1.45% toward Medicare. For self-employed individuals, like many sales consultants or entrepreneurs, the burden is heavier because they must pay both the employee and employer portions themselves — the full 15.3%.

These funds go into the federal treasury and are then used to pay benefits for current retirees and medical costs for senior citizens. When you see that deduction on your pay stub, it might feel like money lost, but in reality, it’s an investment in your older self — a form of collective insurance that ensures everyone has some support in their later years.

The Promise and the Problem with Social SecurityWhen Social Security was first created in 1935, it was designed as a “lockbox.” The money collected from workers was supposed to be set aside in a dedicated fund, used solely to pay benefits to retirees. For many decades, that promise held strong. But over time, changes in government budgeting blurred those lines. Instead of being locked away for the future, Social Security funds began to be borrowed by the federal government and treated as part of the general account — spent on other programs with the promise to repay later.

Today, that decision has created a serious problem. Social Security still pays benefits, but it no longer has the financial cushion it once had. The number of workers paying into the system has decreased compared to the number of retirees drawing benefits. Decades ago, there were more than forty workers supporting each retiree. Now, there are fewer than three. That imbalance threatens the system’s sustainability.

How Long Will Social Security Last?According to current government projections, the Social Security Trust Fund is expected to remain solvent until around the mid-2030s — roughly 2033 to 2035. After that, unless changes are made, the system will still exist but will only be able to pay out about 75 to 80 percent of promised benefits. This means that the younger generation, those working and contributing now, may receive less than what they have paid in over their lifetime.

When I first learned about this, I thought of the many young entrepreneurs and salespeople who were working hard, trusting that their contributions would secure them a safety net later. I realized that depending solely on Social Security was no longer enough. The world had changed, and people needed to take greater control of their financial futures.

Why Relying Only on Social Security Isn’t EnoughSocial Security was never meant to be a person’s only source of retirement income. It was designed to supplement savings and other investments. Yet, over time, too many people came to depend on it as their primary or only source of income. This shift created both personal and national risk. If the system weakens — and all evidence suggests it will — those who have not prepared elsewhere will face great difficulty in their later years.

I always taught my sales consultants to think ahead. The future rewards those who plan today. That’s why I encouraged them to invest in retirement accounts such as 401(k)s, IRAs, or other diversified portfolios. These investments allow your money to grow independently of government programs, offering stability even if Social Security’s foundation begins to crack. A 401(k), in particular, allows you to set aside pre-tax earnings and often receive matching contributions from an employer — effectively free money added to your savings.

Understanding Medicare: Healthcare in RetirementThe second part of FICA, Medicare, was established in 1965 to provide health insurance for Americans aged 65 and older. The small 1.45% you pay each paycheck funds hospital care, doctor visits, and other medical services when you reach retirement age. It’s one of the few programs that almost everyone benefits from eventually, no matter their income.

Still, Medicare has its own challenges. Healthcare costs have risen faster than contributions, creating growing strain on the system. Future retirees may see higher premiums or reduced benefits if reforms aren’t made. That’s why having private health insurance or savings for medical expenses in retirement is just as important as saving for daily living costs.

Taking Responsibility for Your Own FutureWhen I began my company, I taught my team that independence and preparation were essential to success. That principle applies to finances as much as it does to business. FICA is an important part of every worker’s paycheck, but it should not be the only plan for your retirement. Relying solely on government systems that may change over time is like building a house on sand. You must create a foundation of your own through disciplined saving, investing, and planning.

For many years, I have watched hardworking people reach retirement and realize too late that their Social Security checks were not enough to live comfortably. I’ve seen the disappointment in their eyes when they realized the system they trusted had changed. But I’ve also seen those who prepared — who invested, saved, and diversified — live with freedom and peace of mind. That is the path I hope everyone will choose.

A Final Word on Financial IndependenceSocial Security and Medicare represent the best intentions of a society that values its elders. But intention alone cannot sustain a promise. The system may continue, but the benefits will likely diminish if reform does not occur. The wisest course is to take responsibility now — to build your own safety net instead of relying solely on one provided by others.

Each paycheck you earn is a chance to secure your future. Understand where your money goes, respect what FICA contributes, but take your own initiative to invest in your retirement. The world belongs to those who plan ahead, and the greatest gift you can give yourself is financial independence — built not just on what the government provides, but on what you choose to create for yourself.

Social Security & Medicare (FICA Taxes) – Told by Mary Kay Ash

When I first began building my business, I realized that every dollar I earned carried obligations beyond the moment I received it. Some of those obligations were to my family, some to my employees, and some to the country that had created the framework in which I could succeed. Among the most misunderstood of those obligations are the FICA taxes—mirrored in each paycheck, yet seldom deeply understood until one reaches the age where they depend on them. Let me guide you through what FICA means, how it works, the challenges it faces, and why it can’t be your only plan for the future.

What FICA Means and Its PurposeFICA stands for the Federal Insurance Contributions Act. It is the law that governs the withholding of taxes from your paycheck to fund two critical programs: Social Security and Medicare. The idea behind FICA is that while you are working, you pay into a system that helps support you (and others) in later years—especially when you are no longer working or when health care costs rise. In effect, each paycheck contributes a small share toward your retirement and medical security in old age.

How Much Is Withheld and What It CoversToday, the standard FICA withholding is 7.65 % of an employee’s gross pay. That is composed of 6.2 % for Social Security and 1.45 % for Medicare. Employers match that amount, so for each employee, the total FICA contribution is 15.3 %. For someone who is self-employed—often the case for salespeople or independent consultants—there is no employer to match, so the individual is responsible for paying the full 15.3 % themselves (both employee and employer portions).

The 6.2 % Social Security part funds retirement benefits, survivor benefits, and disability payments. The 1.45 % Medicare part goes toward health care services for the elderly and disabled. When those deductions show up on your pay stub, they may feel like money leaving your pocket—but they are meant to be investments in your later life.

The Original Promise and the Emerging ProblemWhen Social Security was created in 1935, it was structured to act almost like a “lockbox.” The contributions of workers were to be held in dedicated trust funds, separate from the general operations of the U.S. government. Those funds were meant to pay out benefits later, ensuring that the money you and others gave in would still be there when you retired.

Over time, however, policy changes blurred that separation. Rather than being stored in a secure, untouchable account, portions of those funds were used for general government spending, with the promise to replenish them later. In effect, Social Security began to be treated as a source of revenue rather than a self-contained investment system. This has weakened the original structure and made the system vulnerable.

As more people retire and life expectancy increases, the inflow of contributions from workers is under strain. There are fewer workers supporting more retirees, and the imbalances have begun to surface. According to current projections, the Social Security Trust Fund is expected to remain fully solvent until about the early to mid-2030s—roughly between 2033 and 2035. After that point, unless reforms are made, the funds collected would only cover approximately 75 % to 80 % of the promised benefits. In practice, this means future retirees might receive significantly less than current law anticipates.

Why Social Security Alone Is Not EnoughBecause of these systemic pressures, anyone depending solely on Social Security (or counting on Social Security as the majority of their retirement income) is taking a risk. It may continue in some form, but the income it produces could be reduced, delayed, or adjusted downward depending on legislative changes. For this reason, it is essential to build additional income streams, such as retirement accounts, investments, and savings, that do not depend on government promises.

When I ran my company, I encouraged my consultants and employees to treat Social Security as the baseline—not the ceiling. I taught them to invest in 401(k)s, IRAs, real estate, or other diversified assets so that when the day came, they would have more than just a government check. I believed—and still do—that financial security requires more than one source of support.

Medicare and Healthcare in RetirementThe Medicare portion of FICA (1.45 %) provides health insurance coverage for Americans aged 65 and older as well as for some younger people with disabilities. While Medicare is critical for covering medical care in later life, it has its own limitations and growing challenges. Healthcare costs have continued to rise faster than the contributions to Medicare, putting pressure on the system’s ability to maintain benefits at current levels without changes.

Because of this, even if Medicare continues, retirees may find themselves paying higher premiums, facing gaps in coverage, or needing supplemental private insurance. That is why saving specifically for healthcare costs—such as via Health Savings Accounts (HSAs) or private plans—is also crucial.

The Role of Withholding and Individual ResponsibilityWithholding exists to smooth the burden of paying taxes and contributions across each paycheck, rather than having workers face a huge bill at the end of the year. By contributing consistently, you avoid the shock of a large lump-sum payment, and the system retains stability. But withholding is only the first step. Without planning beyond those deductions, you may find yourself exposed in your later years.

For independent workers, withholding doesn’t automatically happen. You must estimate and pay quarterly taxes covering both FICA and income taxes. That demands discipline. When I trained my consultants, I always emphasized that discipline in saving sets the difference between freedom and fear in retirement.

Building a Secure Future Beyond FICABecause of the uncertainties facing Social Security and Medicare, it is wise—indeed necessary—to build additional sources of income. Retirement accounts like 401(k)s, IRAs, or other investment vehicles allow your money to grow independently of government systems. Diversification into stocks, bonds, real estate, or annuities further spreads risk and opportunity. By doing this, even if Social Security benefits decline or Medicare premiums rise, you still have a foundation you've built yourself.

I often told my team that no single source of income should be relied upon completely—neither a paycheck nor a government benefit. Resilience comes from having multiple holdings, each serving a role. That way, if one part weakens, the others carry the weight.

W-4 Form and Withholding Allowances – Told by Mary Kay Ash

When I first began employing others, I realized that one of the most important yet confusing parts of receiving a paycheck is the W-4 form. It may look like a simple document, but it has great influence over your financial life. Filling it out properly determines how much tax is withheld from your income before you even see your paycheck. I learned early in my business career that understanding the W-4 was not just about following the law—it was about taking charge of your money and making sure every dollar worked for you.

Understanding the Purpose of the W-4 FormThe W-4 form, officially called the Employee’s Withholding Certificate, tells your employer how much federal income tax to withhold from your pay. Every employee must complete one when they start a new job, and it can be updated at any time. The goal is to ensure that by the end of the year, you’ve paid the correct amount of tax—not too much and not too little.

If you have too much withheld, you’ll get a refund after filing your tax return. That might sound pleasant, but in truth, it means you gave the government an interest-free loan for the entire year. On the other hand, if you withhold too little, you may owe taxes come April, along with possible penalties. The trick is to find the balance so that you are paying exactly what you owe and keeping as much of your money as possible in your own hands throughout the year.

How to Fill Out the W-4 FormThe W-4 begins with basic personal information—your name, address, and filing status. Your filing status (single, married, head of household, or married but filing separately) helps determine your tax rate. After that, you move on to the section about dependents and other income. This is where your life situation truly affects the amount withheld.

If you have dependents—such as children or others you financially support—you can claim them on your W-4 to reduce the amount of tax taken out of your pay. The more dependents you claim, the less tax is withheld, and the higher your take-home pay. If you have multiple jobs or a spouse who also works, you’ll need to take that into account as well. The IRS provides a calculator on its website to help employees get as close as possible to their true withholding amount.

I used to tell my sales consultants that this step was about empowerment. The W-4 isn’t just a form—it’s a declaration of financial control. Too many people ignore it, sign it once, and never revisit it. But the truth is, your life changes, and your form should change with it.

Updating After Major Life EventsA W-4 form should be updated whenever you experience a major life change. Getting married, having a child, or even taking on a second job can dramatically alter your tax situation. Failing to update your W-4 after such events often leads to surprises at tax time—either owing more than expected or receiving a refund that’s really just proof you overpaid.

I remember counseling one of my consultants who had recently married. She was excited about combining finances with her husband but was shocked at how much less they were taking home because both of them had high withholdings. I encouraged her to update her W-4 to reflect her new marital status and the fact that her household income had changed. That simple adjustment put hundreds of dollars back into their monthly budget—money they could use to pay down debt or save for the future.

The Power of Withholding Allowances and DeductionsIn earlier versions of the W-4, you could claim “allowances,” which represented the number of people or deductions you had. The more allowances you claimed, the less tax was withheld. While the modern W-4 form no longer uses the same term, the concept still applies through your entries for dependents and deductions. The key idea remains: you are allowed—and even encouraged—to adjust your withholding to reflect your real situation.

Claiming additional deductions or credits you qualify for can reduce how much is withheld from your paycheck. Mortgage interest, retirement contributions, charitable donations, and certain business expenses may all affect your overall tax bill. Keep records of these deductions and use them to fine-tune your W-4 each year. You are not required to pay more than you owe, and it is your right as a U.S. citizen to minimize your tax burden within the law.

Your Right to Pay Only What You OweThere is a misconception that paying more in taxes is somehow noble. I see it differently. You are obligated to pay what you legally owe—no more and no less. Overpaying your taxes does not make you more patriotic; it makes you less strategic. The government does not pay interest on the money it holds from you all year long. You have the right to use that money to improve your own situation—to pay off debt, build your business, or save for your future.

I’ve always believed that good stewardship of money is a responsibility. By managing your finances wisely, you not only improve your own life but eventually gain the ability to help others. It is difficult to be charitable when you are burdened by unnecessary debt or struggling to meet your obligations. By understanding your W-4 and optimizing your withholdings, you can make your money work for you today while still meeting your obligations to your country.

Tips for Reducing Debt and Increasing Financial FreedomWhen I trained my consultants, I often gave them practical advice for taking control of their income. The first step was always to examine their paycheck. Understanding your W-4 is like opening a door to greater financial freedom. If you have high-interest debt, using your extra take-home pay from proper withholding can help you pay it down faster. The less you owe in debt, the more wealth you can build over time.

Another strategy is to increase contributions to tax-deferred retirement accounts such as a 401(k) or IRA. These reduce your taxable income, lowering your withholding while building long-term savings. The same money that might have gone to excess taxes can instead grow and serve you later in life.

I used to say, “Money is like talent—it grows best when you put it to work.” Don’t let your money sit idle in the government’s hands when it could be improving your future.

Taking Responsibility for Your Financial DestinyUnderstanding the W-4 form is about more than filling out paperwork—it’s about taking responsibility for your own financial destiny. Every choice you make on that form shapes your monthly income, your savings potential, and even your long-term wealth. Review it regularly, especially after major life changes. Don’t let years go by without adjusting it to reflect who you are and where you stand today.

Financial independence is built on awareness and intention. The W-4 form is one of the simplest yet most powerful tools you have to manage your money wisely. Pay what you owe—but no more than that. Use what remains to build your future, reduce your burdens, and, when success finds you, lift others along the way. That is not only smart finance—it is responsible citizenship.

Other Employer Contributions – Told by Mary Kay Ash

When I began building my business, I quickly discovered that the paycheck my employees saw was only part of the story. Behind every check issued and every deposit made, there were unseen contributions that the company itself paid on behalf of each worker. These weren’t deductions from the employee’s pay, but rather commitments made by the employer—financial responsibilities that helped protect workers, support communities, and keep businesses strong. I always believed that a company should not only compensate fairly but also contribute responsibly. Understanding these unseen employer contributions gives you a fuller picture of what your labor truly earns.

Employer-Side FICA ContributionsEvery time you receive a paycheck, part of your income goes toward FICA—the Federal Insurance Contributions Act—which funds Social Security and Medicare. What many people don’t realize is that your employer pays an equal share. If an employee contributes 7.65% of their income to FICA, the employer matches it with another 7.65%. That means for every dollar you earn, your employer pays an additional 7.65 cents to support your future Social Security and Medicare benefits.

When I first started Mary Kay Cosmetics, I learned that this wasn’t a small responsibility. For a growing company with hundreds or even thousands of employees, that contribution added up to a large investment. But it was one I believed in deeply. It meant that each worker’s effort was being doubled in value—half by their own contribution and half by mine. Together, we were ensuring a sense of security for their later years. It’s one of the quiet ways a company shows it cares about its people, even when the employees never see that amount written on their pay stub.

Unemployment Insurance: A Safety Net for Hard TimesAnother major contribution that employers make is unemployment insurance, sometimes called unemployment tax. This payment is made directly to federal and state unemployment funds, not taken from an employee’s wages. The purpose is simple but essential: to provide a safety net for workers who lose their jobs through no fault of their own.

When I hired my first team, I knew that not every situation would last forever. Sometimes a position ended, sometimes a person had to move on, and sometimes business conditions changed. Unemployment insurance ensured that when these transitions occurred, employees would not be left without any income. They could still afford to live, search for work, and regain their footing. This program helps protect both workers and the economy as a whole—because when people have stability, even in difficult times, businesses can recover faster.

The rate that an employer pays into unemployment insurance depends on several factors, such as the size of the company and its employment history. A business with few layoffs pays a lower rate; one with frequent turnover pays more. This encourages companies to retain workers, provide training, and manage their workforce responsibly. To me, that was more than fair—it rewarded loyalty and good management.

Worker’s Compensation: Protection on the JobOne of the most important protections an employer provides is worker’s compensation insurance. This program ensures that if an employee is injured or becomes ill because of their job, they will receive medical treatment and compensation for lost wages without having to go through lengthy legal battles. It protects both the worker and the employer—offering care and financial relief for the employee, while shielding the company from lawsuits.

I remember a time when one of our warehouse workers slipped while moving inventory. Though his injury was minor, the worker’s compensation system ensured his medical care was fully covered and that his wages continued during his short recovery. He didn’t have to worry about bills or missing pay, and I didn’t have to fight with lawyers or insurance adjusters. It was a system of fairness, designed to help people heal and return to work.

Worker’s compensation premiums are paid entirely by the employer and vary depending on the type of work employees perform. High-risk industries, such as construction or manufacturing, pay higher premiums than lower-risk fields like office work. In my company, we took pride in maintaining a safe environment, not only to reduce costs but because I believed that protecting people is simply the right thing to do.

The Hidden Value of Employer ContributionsMany employees never think about the financial commitments their employers make beyond the paycheck. Yet those unseen costs can amount to thousands of dollars each year. In truth, your total compensation is greater than what you see on paper. Between matching FICA payments, unemployment insurance, and worker’s compensation premiums, an employer invests heavily in your well-being and security.

I used to tell my staff that these invisible benefits are part of what makes employment relationships strong. When a company supports its people beyond the basics, it builds loyalty, trust, and pride. Those qualities, in turn, create better performance and a healthier workplace. It’s not just about money—it’s about building a culture of care.

How These Contributions Support EveryoneEmployer contributions don’t just protect individual workers—they sustain the economy as a whole. FICA ensures that seniors can live with dignity. Unemployment insurance keeps families stable during transitions. Worker’s compensation maintains safety and fairness in workplaces across the nation. When businesses pay these costs faithfully, they are not only following the law—they are investing in the strength of their communities.

I often told other business owners that paying these contributions was not a burden, but a responsibility of leadership. Every great company is built on people, and taking care of those people is the foundation of long-term success. Without healthy, secure workers, no business can thrive for long.

Taking the Broader View of CompensationFor employees, understanding these contributions helps build appreciation for the full value of their job. When you look at your paycheck, remember that your employer is also contributing significant funds on your behalf—money you may never see directly, but which provides critical protection and long-term benefits. For employers, these contributions are a reminder that success isn’t just measured by profit, but by how well you safeguard those who help you build it.

Overtime, Bonuses, and Commission Pay – Told by Zack Edwards

When I was first learning how pay structures worked in the real world, I discovered that not every dollar earned is equal. Some income comes from regular hours, some from working extra, and some from meeting goals or selling products. Each type of pay is calculated differently, and each is taxed differently, too. Overtime, bonuses, and commissions can make a big difference in your total income, especially if you understand how they work and how to make the most of them.

Understanding Overtime PayOvertime is one of the most common forms of extra income, and it’s usually earned when you work more than forty hours in a week. The Fair Labor Standards Act requires that most employees be paid at least one and a half times their normal rate for every hour worked beyond that forty-hour mark. This is what’s called “time-and-a-half.”

For example, if you earn $20 an hour and work 45 hours in a week, you would receive 40 hours at your regular rate ($800) and 5 hours at time-and-a-half ($30 per hour), which adds another $150. Your total for the week would then be $950 instead of $800. That extra $150 may not seem like much, but over a year, consistent overtime can make a huge difference.

However, there’s a catch: you don’t usually get to choose whether to work overtime. Many employers expect you to stay late or work extra shifts when demand is high, and refusing might affect your job security. I’ve spoken with many workers who said they were told, “If you don’t work this weekend, we’ll find someone who will.” It isn’t always fair, but it’s a reality in many industries. My advice has always been this: if overtime is offered and you’re able to do it, take advantage of it. You’re already at work, and the extra pay is worth it—especially when it’s taxed as regular income, meaning the more you earn, the more valuable those hours become for your financial growth.

How Overtime Is TaxedOvertime pay is treated just like your regular wages for tax purposes, even though it’s paid at a higher rate. It’s added to your total gross pay and taxed at your ordinary income rate. This means if your overtime pushes your yearly income higher, you may temporarily fall into a higher tax bracket for that portion of income. But even after taxes, you still earn more per hour than your normal rate, so the benefit outweighs the extra taxes. I always tell people—don’t let the fear of taxes keep you from earning more. The key is to plan for it.

Understanding BonusesBonuses are another form of additional income, often used by employers to reward performance, loyalty, or company success. There are many types—holiday bonuses, signing bonuses, year-end performance bonuses, or production bonuses. But they’re not all treated the same when it comes to taxes.

The IRS classifies most bonuses as “supplemental income,” which means they are subject to a flat withholding rate. Currently, that rate is 22% for federal taxes, though your employer may also withhold for Social Security, Medicare, and state income taxes. In short, a $1,000 bonus might leave you with around $750 to $800 after taxes, depending on your location and total income.

Some employers combine bonus pay with regular wages, which can temporarily increase your withholding rate and make it appear as though more taxes were taken out. But at the end of the year, it usually balances out on your tax return. Bonuses are one of those pleasant surprises that can either help you pay down debt, build savings, or reward yourself for a job well done—but they require planning, too.

I remember one of my earliest jobs when I received my first small bonus. I was tempted to spend it right away, but I learned that using it to pay down credit card interest saved me far more money in the long run. Bonuses feel like a windfall, but they’re most powerful when you use them strategically—to get ahead, not just to splurge.

Commission Pay and the Power of PerformanceUnlike hourly pay or fixed salaries, commission pay is based directly on what you produce or sell. The more you sell, the more you earn. This is a system I know well because my entire career has been built on commission, whether in sales, education, or entrepreneurship.

Commission can be structured in many ways. Some companies pay a straight commission—say, 10% of every sale. Others combine it with a base salary, providing stability with room for growth. For example, if you earn a $30,000 salary plus 5% commission, and you sell $200,000 worth of products in a year, you’d earn $10,000 in commissions on top of your base pay, bringing your total to $40,000.

Commission income, like bonuses, is considered supplemental income by the IRS. It’s taxed the same way as regular pay, but because it fluctuates, your paycheck may look different from month to month. That unpredictability can be stressful, but it also means there’s no ceiling on what you can earn. In my experience, commission-based work rewards creativity, resilience, and persistence. It’s not easy, but it gives you ownership over your income—something hourly jobs rarely offer.

The Challenges and Realities of Extra PayWorking overtime, earning bonuses, or chasing commissions all have one thing in common: they demand extra effort. That effort can come at the cost of time, energy, or even personal balance. There were times in my own career when I pushed through exhaustion to meet deadlines or close a deal because I knew the rewards would follow. But I also learned to plan ahead—to save part of every extra dollar for future goals.

The truth is that extra income can vanish as quickly as it arrives if you’re not intentional with it. Taxes take a portion, unexpected expenses take another, and lifestyle inflation—spending more just because you’re earning more—can erase the rest. That’s why I always tell people to make every dollar of overtime, bonus, or commission count. Use it for things that build your financial foundation: paying off debt, growing an emergency fund, or investing in your future.

Why You Should Take Advantage of Extra PayIn today’s world, overtime or additional compensation is not always optional. Many workers face the reality that refusing overtime can make them appear less dedicated, sometimes even risking layoffs. While this may seem unfair, it can also be an opportunity. If you’re going to work those extra hours, make sure they work for you.

When I coach people about finances, I tell them: every moment you give to your work is valuable, and every extra dollar earned should have a purpose. Overtime gives you leverage to get ahead. Bonuses reward your dedication. Commissions allow you to define your own limits. Don’t leave that money on the table—use it wisely to build stability and freedom.

Reading Year-to-Date (YTD) Information – Told by Zack Edwards

When I first began managing my own money, I thought my paycheck was straightforward: I worked, I earned, and I spent. But over time, I realized that one of the most powerful financial tools hiding in plain sight is found right there on every pay stub—the Year-to-Date, or YTD, information. Those small rows of numbers aren’t just recordkeeping; they’re a roadmap of your financial year. Learning to read and understand them gives you control over your earnings, your taxes, and your goals.

What YTD Really MeansYear-to-Date simply means the total amount accumulated from the beginning of the year up to the most recent paycheck. Every time you’re paid, your pay stub updates these totals, showing what youin’ve earned so far and what has been withheld for taxes, benefits, and other deductions. It’s like a running total of your financial story for the year.

The YTD section usually includes several categories: gross pay (the total you’ve earned before deductions), net pay (what you’ve actually taken home), and the totals for all your deductions—federal tax, state tax, Social Security, Medicare, insurance, and retirement contributions. It also often includes employer-paid contributions such as health insurance or 401(k) matches, which don’t come out of your pocket but are still part of your total compensation.

Understanding YTD EarningsYour YTD earnings tell you how much money you’ve made from January 1st to your current pay period. This is your gross income before any taxes or deductions. It’s useful for tracking progress toward your yearly financial goals. For example, if your goal is to earn $60,000 this year, and by June your YTD earnings show $28,000, you know you’re on track—or behind.

But YTD earnings aren’t just about income—they also give insight into your work habits and pay patterns. If you’ve earned more than expected, maybe you’ve been working overtime, received a raise, or earned a bonus. If it’s less, perhaps you’ve had unpaid time off or fewer hours than usual. These numbers can help you understand not only your financial situation but also your career rhythm throughout the year.

Tracking YTD Taxes and DeductionsThe deduction side of your YTD information is equally important. It lists how much money has been withheld for federal and state taxes, Social Security, Medicare, and any other programs. This is where most people overlook opportunities to save.

By studying your YTD tax withholdings, you can estimate how much you’ll owe at the end of the year—or how much of a refund you might get. If you’re consistently getting large refunds each year, that means too much is being taken out of your paycheck. The government is holding your money interest-free, and you could be using that extra cash throughout the year to pay bills, invest, or reduce debt.

On the other hand, if you find that too little is being withheld, you could end up with a tax bill next April. By reviewing your YTD totals midyear, you can make adjustments to your W-4 form and fine-tune how much tax is being withheld. That way, you’re paying exactly what you owe—no more, no less. The best financial position is when you neither owe the government nor receive a big refund; you’ve managed your income perfectly.

Reading YTD Benefits and ContributionsAnother important part of YTD information includes what’s being deducted for benefits like health insurance, dental and vision plans, or retirement accounts. These deductions are often easy to ignore, but they’re crucial for understanding your true take-home pay.

For example, if your YTD total shows that you’ve contributed $3,000 to your 401(k), that’s a sign you’re building your future while lowering your taxable income. If your employer matches a portion of those contributions, that’s free money added to your retirement savings. By checking these numbers regularly, you can decide whether to increase your contributions and take fuller advantage of employer matches or tax-deferred savings.

Similarly, if you notice your health or insurance deductions have increased since last year, that might mean your coverage changed or premiums went up. These small details help you stay informed about where your money is going and give you a chance to adjust your budget accordingly.

Using YTD to Track Savings GoalsI’ve always told people that tracking your money is one of the fastest ways to improve your financial life. The YTD section of your pay stub is a built-in tracker that helps you see progress toward your goals. Maybe you’re saving for a down payment on a home, building an emergency fund, or paying off student loans. By comparing your YTD earnings to your savings, you can see whether you’re keeping enough or spending too much.

For example, if your YTD net pay shows $30,000 and your savings account only holds $1,500, you know only 5% of your income has gone toward savings. If your goal was to save 10%, you’re falling short—and you can start making small changes now to catch up. These insights are invaluable because they prevent you from waiting until the end of the year to realize what went wrong.

Adjusting Midyear for a Strong FinishThe beauty of reading your YTD totals is that it gives you the power to adjust before it’s too late. Around June or July, take a close look at your year-to-date pay stub. Ask yourself these questions:

• Am I paying too much in taxes?

• Am I saving enough for retirement?

• Do my deductions match my financial priorities?

If you find that your taxes are too high, you can update your W-4 form to reduce your withholdings for the rest of the year. That change could add hundreds of dollars to each paycheck—money you can use to pay off debt, invest, or cover other goals. The earlier you adjust, the bigger the benefit.

I once worked with a young employee who didn’t realize she was having nearly $400 more withheld each month than necessary. Once she reviewed her YTD totals and adjusted her W-4, she immediately began bringing home that extra money. By the end of the year, she had paid off a credit card and started her first investment account—all from understanding her pay stub better.

Taxes, Timing, and AwarenessYTD information also helps you prepare for tax season long before April rolls around. If you’re self-employed or work multiple jobs, this data helps you estimate total income and avoid underpayment penalties. If you’re an employee, it lets you see whether you’re on track to owe or receive a refund. The more aware you are, the more in control you become.

The truth is, most people don’t realize how much is being taken from their paychecks until tax time. But by studying your YTD figures regularly, you can reclaim some of that control. The goal isn’t to cheat the system—it’s to understand it so you can keep more of what you’ve earned and put it to good use.

Building Wealth Through AwarenessWhen I talk about financial literacy, I always come back to awareness. You can’t improve what you don’t measure. Reading your Year-to-Date information gives you insight into your true financial picture—your income, taxes, benefits, and deductions all in one place. It’s a habit that turns confusion into confidence.

By knowing where your money goes and adjusting as needed, you can bring home more next year than you did this one. The difference between those who struggle and those who succeed often comes down to who’s paying attention.

Your paycheck tells a story—of effort, growth, and opportunity. Don’t let it pass you by unread. Learn from it, plan with it, and use it to make every dollar count toward your dreams.

Budgeting with Take-Home Pay – Told by Zack Edwards

When I first started learning how to manage money, I made the same mistake most people make—I built my budget around my gross income instead of what I actually brought home. On paper, I looked wealthier than I felt. But each month, after taxes, insurance, and deductions were taken out, I was left wondering why I always seemed short. It wasn’t until I learned to plan my finances based on my net pay, or take-home pay, that my financial life began to stabilize. If you learn to budget around what actually lands in your account, not what’s promised before deductions, you’ll never be surprised by an empty wallet at the end of the month.

Understanding Gross Pay vs. Take-Home PayYour gross pay is the total amount you earn before taxes and deductions. It’s the number that looks nice on your job offer letter or contract—but it’s not what you live on. Your take-home pay, or net pay, is what’s left after federal and state taxes, Social Security, Medicare, health insurance, and retirement contributions are subtracted. That’s the money that’s yours to spend, save, and manage.

Let’s say your gross salary is $4,000 a month. After taxes and deductions, your take-home pay might be closer to $3,000. That $1,000 difference is significant. If you budget using your gross pay, you’ll quickly overspend and fall short. When I finally realized this, it changed everything about the way I handled my finances.

Why Budgeting with Net Pay MattersBudgeting with your take-home pay gives you a clear picture of what you actually have to work with each month. It forces you to live within your means and prevents you from relying on credit cards or loans to make up the difference. Many people fall into debt simply because they budget with gross income—they assume they have more to spend than they really do.

When you base your financial plan on net pay, you’re budgeting for reality, not fantasy. It’s the financial equivalent of looking in a mirror instead of a photograph. You see things as they are right now, not how you wish they were.

How to Estimate Your Monthly Take-Home IncomeIf you’re not sure what your exact take-home pay is, you can estimate it easily. Start by finding your gross pay—either your hourly rate multiplied by hours worked or your annual salary divided by 12. Then subtract the typical percentages for taxes and deductions.

As a general rule, most people lose about 20% to 30% of their income to taxes and other deductions. So if your gross monthly income is $4,000, you can estimate:

• 25% for taxes and deductions = $1,000

• Estimated take-home pay = $3,000

Of course, this varies depending on your state, family size, benefits, and tax situation. But even a rough estimate helps you plan better. If you want to be precise, check your pay stub or use an online paycheck calculator that includes your state’s tax rates and any benefit deductions.

Creating a Simple Net Pay BudgetOnce you know your monthly take-home income, it’s time to create a budget that works. Start by writing down your fixed expenses—those bills that don’t change much from month to month. This includes rent or mortgage, car payments, insurance, utilities, and minimum debt payments. Then, list your variable expenses—food, gas, entertainment, clothing, and savings goals.

Here’s a simple formula I often teach to beginners:

1. 50% for Needs: These are your essentials—housing, food, transportation, utilities, and insurance.

2. 30% for Wants: These are your lifestyle choices—dining out, hobbies, subscriptions, or vacations.

3. 20% for Savings and Debt Reduction: This includes emergency savings, retirement contributions, and paying down any loans or credit cards.

Using our $3,000 net pay example, that would look like this:

• $1,500 for needs

• $900 for wants

• $600 for savings or debt payoff

It’s a flexible plan that helps you stay balanced without feeling restricted.

Sample Exercise: Finding Your True Spending PowerHere’s an exercise I’ve used in workshops to help people see the power of budgeting with net pay:

Step 1: Write down your gross monthly pay.Step 2: Look at your last pay stub and find your net pay.Step 3: Multiply that net pay by how many times you’re paid in a month.

Now compare the two numbers. The difference is what you thought you earned versus what you actually bring home. That gap is where most financial stress begins.

Next, list your actual expenses and see if they fit within your take-home pay. If they don’t, it’s time to adjust your spending—not your expectations. Learning to live off what you truly earn builds discipline and peace of mind.

Adjusting Your Budget When Things ChangeLife doesn’t stay the same, and your budget shouldn’t either. If you get a raise, don’t immediately increase your spending. Wait until you see what your new take-home pay looks like after taxes and deductions. Often, a raise of a few hundred dollars a month in gross income may only result in $100 to $150 more in net pay. That’s still good news—but you should decide carefully where that money goes.

Similarly, if your expenses change—like higher rent or new medical costs—revisit your budget immediately. Many people wait until they’re short at the end of the month to make adjustments. By then, the damage is already done. A smart budget evolves with your life, just as your paycheck does.

Saving Before SpendingWhen budgeting with net pay, always pay yourself first. That means setting aside a portion of your take-home income for savings before paying bills or spending on extras. Whether it’s 5%, 10%, or even 20%, this habit builds long-term stability. You can even automate it by having a portion of your paycheck go straight into a savings account or investment plan.

I’ve met countless people who told me, “I’ll start saving when I make more money.” But the truth is, if you can’t save when you make $3,000 a month, you won’t save when you make $10,000. It’s not about the amount—it’s about the habit. Budgeting with take-home pay teaches that discipline naturally because it forces you to make intentional choices about every dollar.

Turning Net Pay into FreedomUnderstanding and budgeting with your take-home pay isn’t just about making ends meet—it’s about building freedom. When you live within your means, you control your finances instead of your finances controlling you. You’ll stop relying on credit cards to bridge the gap and start using your income to create stability and opportunities.

The day I started basing my budget on what I truly earned—not what I hoped I earned—was the day I stopped feeling broke. My bills didn’t change, my income didn’t skyrocket, but my awareness did. Suddenly, every dollar had a purpose, and I could see progress instead of confusion.

Practical Application: Building Your Personal PlanTry this simple practice to start today:

1. Find your average take-home pay per paycheck.

2. Multiply that number by the number of pay periods in a month (for example, two for biweekly paychecks).

3. Write down your monthly expenses, separating them into needs, wants, and savings.

4. Make sure your totals never exceed your net pay. If they do, adjust your spending until they fit.

5. Review your plan every month and make small improvements.

Budgeting isn’t about restriction—it’s about control. When you plan with your take-home pay, you learn to live on what’s real, prepare for what’s next, and build the future you want without fear of falling short.

If you take one lesson from this, let it be this: gross pay looks impressive, but net pay is what feeds your family, pays your bills, and funds your dreams. Budget from that, and you’ll always be one step ahead.

Vocabular to Learn While Learning About Earning an Income

1. Gross Pay

Definition: The total amount of money earned before any taxes or deductions are taken out.Sentence: If Maria earns $15 an hour and works 40 hours, her gross pay for the week is $600.

2. Net Pay

Definition: The amount of money you actually take home after taxes and deductions are subtracted from your gross pay.Sentence: After all her deductions, Maria’s net pay was $480—what she actually received in her bank account.

3. Deduction

Definition: Money taken out of your paycheck for taxes, insurance, retirement, or other benefits.Sentence: Common paycheck deductions include federal taxes, Social Security, and health insurance.

4. Withholding

Definition: The portion of your paycheck that your employer sends directly to the government to cover your taxes.Sentence: The more allowances you claim on your W-4 form, the less money will be withheld from each paycheck.

5. FICA

Definition: Stands for Federal Insurance Contributions Act; it’s the law that funds Social Security and Medicare through payroll taxes.Sentence: Every paycheck includes a FICA deduction that helps pay for retirement and healthcare benefits for older Americans.

6. Social Security

Definition: A federal program that provides income for retired people, disabled workers, and their families.Sentence: Workers pay into Social Security now so they can receive benefits when they retire.

7. Medicare

Definition: A federal health insurance program for people aged 65 and older or with certain disabilities.Sentence: Part of your FICA taxes goes toward Medicare, which helps cover medical costs later in life.

8. W-4 Form

Definition: A form you fill out when starting a job that tells your employer how much federal tax to withhold from your paycheck.Sentence: After getting married, James updated his W-4 form to adjust his tax withholdings.

9. Pay Stub

Definition: A document that comes with your paycheck showing how much you earned and how much was deducted.Sentence: The pay stub helped Tasha understand why her check was smaller than her total earnings.

10. Overtime Pay

Definition: Extra pay for hours worked beyond the regular 40-hour work week, usually paid at time-and-a-half.Sentence: When Derek worked 45 hours, his extra five hours were paid at the overtime rate.

11. Bonus

Definition: Extra money given by an employer for good performance or company success.Sentence: The company gave every employee a holiday bonus as a reward for meeting sales goals.

12. Commission

Definition: Pay based on a percentage of sales made, often used for sales jobs.Sentence: Because Nina sold five cars this month, she earned a large commission from her dealership.

13. YTD (Year-to-Date)

Definition: The total amount of money earned or deducted from January 1 up to the current paycheck.Sentence: The YTD section on Marcus’s pay stub showed he had earned $18,500 so far this year.

14. Allowance

Definition: A claim on the W-4 form that reduces how much income tax is withheld from your paycheck.Sentence: Since Laura has two children, she claimed two allowances on her W-4 form to reduce her tax withholding.

15. Tax Bracket

Definition: The range of income that determines the rate at which your income is taxed.Sentence: As your income rises, you may move into a higher tax bracket and pay a larger percentage in taxes.

16. Employer Contribution

Definition: Money your employer pays toward benefits like retirement plans, insurance, or taxes on your behalf.Sentence: Her employer contributed 5% of her salary to her retirement plan every year.

17. Unemployment Insurance

Definition: A government program that provides temporary income to workers who lose their jobs.Sentence: Employers pay unemployment insurance taxes so that workers can get help if they lose their jobs.

18. Worker’s Compensation

Definition: Insurance that provides pay and medical benefits to employees injured on the job.Sentence: After his injury at work, David received worker’s compensation to cover his medical bills.

19. Retirement Contribution

Definition: Money set aside from each paycheck for retirement, often in a 401(k) or pension plan.Sentence: By contributing 6% of her paycheck to her 401(k), Sarah was saving for her future while reducing her taxes.

20. Budget

Definition: A plan for how to spend and save your income.Sentence: Using his net pay, Jacob created a budget to track his spending and reach his savings goals.

Activities to Demonstrate While Learning About Earning an Income

Create Your Own Pay Stub

Recommended Age: Grades 6–8

Activity Description: Students will simulate earning money at a fictional job, calculate taxes and deductions, and create a realistic pay stub that shows gross pay, deductions, and net pay.

Objective: To teach students how gross pay is reduced by taxes and other deductions to arrive at take-home (net) pay.

Materials:

• Blank pay stub template (printed or digital)

• Calculators

• Sample deduction chart (with percentages for federal tax, state tax, Social Security, Medicare, etc.)

• Paper and pencils

Instructions:

1. Give each student a “job” title (e.g., barista, cashier, teacher’s assistant) and assign them an hourly wage.

2. Tell them they worked a 40-hour week and have to calculate their gross pay.

3. Provide the deduction chart. For example:

   • Federal tax: 10%

   • State tax: 5%

   • Social Security: 6.2%

   • Medicare: 1.45%

4. Have students calculate each deduction, subtract from gross pay, and find their net pay.

5. Using the template, they will create a realistic pay stub that includes all totals and YTD (Year-to-Date) information.

Learning Outcome: Students will understand the difference between gross pay and net pay, identify key components of a pay stub, and appreciate how taxes and deductions affect take-home income.

Activity 2: Paycheck Math Challenge

Recommended Age: Grades 7–9

Activity Description: Students will compete to correctly calculate take-home pay using a variety of income and deduction scenarios.

Objective: To practice mathematical skills while reinforcing real-world applications of taxes, deductions, and budgeting.

Materials:

• Pre-made worksheets with different income and deduction problems

• Calculators

• Whiteboard or poster paper for team answers

Instructions:

1. Divide students into small groups or pairs.

2. Give each group a worksheet with problems such as:

   • “If you earn $18/hour for 42 hours and pay 12% in taxes, what is your take-home pay?”

   • “If your gross monthly income is $3,000 and you contribute 5% to retirement and pay $250 in insurance, what’s your net pay?”

3. Set a timer for each round.

4. Award points for accuracy and speed.

5. Discuss each answer as a class, reviewing the steps and real-life significance.

Learning Outcome: Students will strengthen math fluency, learn to calculate various deductions, and understand the real-world implications of taxes and benefits on their earnings.

Activity 3: Role-Play: Employer and Employee

Recommended Age: Grades 8–10

Activity Description: Students take turns acting as employers and employees. Employers calculate and issue paychecks, while employees fill out W-4 forms and review their pay stubs for accuracy.

Objective: To teach how W-4 forms influence withholding and how to verify deductions on a paycheck.

Materials:

• Sample W-4 forms

• Blank pay stubs or spreadsheets

• Fake checks or “direct deposit slips”

• Calculators

Instructions:

1. Assign half the class to be “employers” and half to be “employees.”

2. Employees fill out a W-4 form, choosing their filing status and number of dependents.

3. Employers use that information to calculate tax withholdings using provided tax rate tables.

4. Employers issue a paycheck and a pay stub.

5. Employees review their pay stubs and check for accuracy.

6. Switch roles halfway through so everyone experiences both sides.

Learning Outcome: Students will understand how withholding decisions affect take-home pay and learn to read and verify paycheck information—critical real-world financial literacy skills.

Activity 4: Build a Monthly Budget Using Take-Home Pay

Recommended Age: Grades 9–12

Activity Description: Students will use a sample pay stub to calculate their monthly take-home pay and create a realistic budget for housing, food, transportation, and entertainment.

Objective: To teach students how to manage their income based on net pay, not gross pay.

Materials:

• Sample pay stubs (with varying incomes)

• Budget worksheet or spreadsheet

• Calculators

• Pencil and paper

Instructions:

1. Provide each student with a sample pay stub showing gross pay, deductions, and net pay.

2. Have them determine their monthly income by multiplying biweekly net pay by two.

3. Give them average cost categories (rent, food, gas, savings, etc.).

4. Students allocate funds based on their income, learning to prioritize needs over wants.

5. Discuss as a class what expenses could be adjusted to increase savings or reduce debt.

Learning Outcome: Students will understand the importance of budgeting based on take-home pay and develop financial planning skills for real-life independence.

Activity 5: Tax Simulation Game

Recommended Age: Grades 10–12

Activity Description: Students simulate a year’s worth of income, deductions, and life changes to see how tax withholding, bonuses, and overtime affect their final take-home pay.

Objective: To provide a hands-on understanding of how different financial decisions and tax rates influence overall earnings.

Materials:

• Role cards (e.g., “single parent,” “student worker,” “married professional”)

• Blank pay stub templates

• Deduction charts

• Calculators

Instructions:

1. Assign each student a role card with an income, number of dependents, and financial situation.

2. Students calculate gross pay for several “months” of simulated work.

3. Introduce events:

   • Month 3: You earn a $500 bonus.

   • Month 6: You start contributing to a retirement plan.

   • Month 9: You receive a raise.

4. Students update their pay stubs and calculate new taxes and deductions each time.

5. At the end, they total their Year-to-Date (YTD) income and deductions, reflecting on what changed.

Learning Outcome: Students will understand how life events, tax rates, and employment benefits impact their paycheck, preparing them to navigate real-world financial situations.

Activity 6: Paycheck Scavenger Hunt

Recommended Age: Grades 5–7

Activity Description: Students will explore a sample pay stub to find and label important parts such as gross pay, deductions, net pay, and YTD totals.

Objective: To introduce younger students to the basic structure and vocabulary of a paycheck.

Materials:

• Sample pay stub (printed or digital)

• Highlighters or colored pencils

• Worksheet with clues (“Find where it shows how much was earned before taxes,” “Locate the total taxes paid this year,” etc.)

Instructions:

1. Give each student a sample pay stub and a scavenger hunt worksheet.

2. Have them color-code or circle items that match each clue.

3. Review answers as a class, discussing what each section means and why it’s important.

Learning Outcome: Students will learn how to identify and define key terms on a pay stub and gain a foundational understanding of how income and taxes work.

Activity 7: Real-Life Reflection Journal

Recommended Age: Grades 9–12

Activity Description: Students write a short reflective journal after completing the above activities, imagining what it would feel like to receive their first real paycheck and how they would manage it.

Objective: To help students personally connect what they’ve learned about paychecks, deductions, and taxes to their own future.

Materials:

• Journal paper or digital writing tool

Instructions:

1. Ask students to describe their future first job and estimate what their paycheck might look like.

2. Have them write about what they’d do with their take-home pay—how much they’d save, spend, or invest.

3. Encourage them to include reflections on taxes, deductions, and budgeting.

Learning Outcome: Students will internalize lessons about responsible financial planning and develop an appreciation for the importance of understanding their pay stub.