Newsletter: October, 2008


Who’s been nibbling your paycheck?

It’s payday! Whoo-hoo! But wait a second–looks like a little mousie has been nibbling at your total. FICA? SOCSEC? Who are these mysterious organizations who shave a little off of every dollar you earn?


There’s nothing mysterious about them–it’s your friend Uncle Sam, a.k.a. the U.S. Federal Government, and those are the taxes you pay when you work in the U.S. It’s called “withholding.” You can’t avoid paying taxes, but at least you can know what they are and why you pay them.

Fast Fact

This famous musician spent years paying $19.7 million in back taxes. He blamed the deficit on bad advice from his accountants–and had the self-confidence to spoof his tax troubles in a 2003 Super Bowl commercial in 2003. To learn who it is, scroll down for a link to the answer!



Let’s take a look at the big withholding categories. Depending on your employer and your state, you may see other deductions other than the ones we list here. But just about everyone will have to pay these. Next to the name, we list the common abbreviations that you might see on your paycheck.


Federal income tax (FIT)

These taxes are used to keep the Federal Government running. They pay for things like the armed forces, the Federal Bureau of Investigation (FBI), the Environmental Protection Agency (EPA), the salaries of administrators and congresspeople, and tons of other government programs. And a big chunk pays the interest on the national debt–almost $430 billion in 2007!

You pay: 10% to 35% of what you earn, depending on how much you make.

You get: the Federal Government!

FICA Social Security (FICA-SS, SOC SEC, OASDI)

FICA is the Federal Insurance Contributions Act. Social Security is the part of FICA that provides monthly income to people when they retire from work or become disabled and can’t work.

You pay: 6.2% of your pay up to $102,000.00

You get: Social Security benefits when you retire or are disabled. Usually, the more you pay into Social Security over your life, the more you get out when you retire.

FICA Medicare

Medicare provides health insurance to people who are 65 or older and the disabled. The Federal government also helps pay for state-run Medicaid, a medical insurance program for low-income families.

You pay: 1.45 % of your pay up to $102,000.00

You get: Medical insurance when you retire or are disabled.

You’re not alone–or are you?

If you work for someone else, you’re only paying half of your payroll taxes. Your employer pays the other half, plus some other things like federal unemployment insurance tax. But if you work for yourself, you pay both portions. Who said self-employment was easy?


Ask John Paul

Q: What are automatic 401(k) deductions?

A:  A 401(k) account holds money that you can use when you retire. With automatic 401(k) deductions, your employer puts a certain amount of money in one of these investment accounts for you. The advantage to this method is that you get to do it with pretax dollars–the money put into the 401(k) is not taxed. And most of the time, the employer matches your contribution. So if you put in $100, your employer will add $100–you have just doubled your money! The money may be invested automatically, or you can choose how you wish to invest it. A 401(k) plan can be a great tool for building wealth!

John Paul Pigéon is a 12-year-old financial guru from Fort Worth, Texas who helps kids learn about money and business. Click here to visit his Web site. Send your question to It may be selected for our next newsletter!



Biz Kid of the Month:  Caety Sagoian

To make it as a theater and voiceover artist, Caety does a lot of different jobs–and gets a lot of different kinds of paychecks. She tells us how she keeps it all straight
Tell us a little about the work you do.
I graduated from an arts conservatory in 2006 with a degree in theater and jazz vocals and fell into voiceover industry. I also act in plays.
And you get paid in different ways?
Yes, for voiceover work, I get paid through an agent who handles my booking. They don’t withhold any taxes from my paycheck. A lot of my acting work is paid through the Actors Equity Union. They do withhold taxes, and they also take some out for the health plan they provide.
What do you do when your employer doesn’t withhold taxes?
I save 10% of those paychecks in a special account so I can pay my taxes at the end of the year! It’s fun to get a big paycheck but you have to be steadfast in saving some of it. There’s no avoiding taxes.
Sounds like a challenge.
I feel lucky to have so much control over my finances, but budgeting has been a big lesson.
How do you keep it all organized? 
I invested in a fancy filing cabinet–it’s all flowered and girly. It represents my commitment to staying on top of my finances–and makes it more fun.

Do you know a Biz Kid who should be featured in our newsletter? Send him or her our way at!



Link to This Month’s Fast Fact

Click here for the answer!

Info to Go

An in-depth guide to your paycheck:

Information on the national debt, where a lot of your taxes go:

And don’t forget to check out the BizKids Web site where you can get the latest scoop: