Welcome to lesson one. In this lesson, you're going to learn how to interpret your pay stub and calculate your tax estimates for federal tax purposes. You will be successful if, when you are finished with this lesson, you can look at your pay stub, find your taxable income, and then make a rough estimate of what your total tax liability would be at the end of the year and compare it to what's being withheld to determine if you're on track. Our objectives are to understand the difference between gross and net pay, especially taxable gross pay, and then to calculate taxes withheld and predict annual withholdings and annual tax liability. Let's go ahead and look at a pay stub and examine the key components. In the top of the pay stub, you have all your personal information. However, for our estimates, the more important things are circled. Number one, we have our marital status and our tax exemption. This tax exemption is something that you have claimed for your employer on a form called a W-4, which we'll talk about in a little bit. Your marital status is important too because depending upon how many exemptions you claim, in combination with your marital status (whether you're single, married, head of household), it will change how much is withheld for federal tax purposes. Next, I have the pay date or the pay period end date. This is important because you'll need to know how many times a year you're going to be paid if you want to make an accurate estimate. A couple of other important things are the total gross and taxable gross. In a previous quarter, we talked about total gross and net pay. Down here at the bottom, you can see your net pay, which is what you actually...
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