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Hourly wage earners can be paid weekly, bi-weekly, bi-monthly or even monthly. Salary wage earners can be compensated in the same manner.
All wage earners receive net earnings after deductions.
The employee's pay check states a gross income for the period worked. The pay check stub list the deductions that are withheld from the gross income and the employee receives the remaining balance.
This is the Net Income.
Deductions can include federal/state taxes, FICA and Medicare tax, health insurance, 401k etc. Gross income minus deductions equals net income.
Remember that employee FICA deduction is 6.2% and Medicare deduction is 1.45% for a total of 7.65%. The employer pays an additional 7.65% on behalf of the employee. The FICA deduction is limited to earned income up to a maximum of $94,600 for the year 2006.
Medicare is charged against all earned income.
Self employed individuals must pay 12.4% FICA and 2.9% Medicare on their gross income after expense deductions. Self employed are allowed to deduct 6.2% as an expense against income.
Most self employed pay personal and business related taxes quarterly.
To determine the self employed's gross income before personal taxes, the person responsible for keeping the books (book keeper, accountant, etc.) must account for all business related expenses. The gross income, after business related expenses, is now taxed as personal income.
The taxing authorities take their share of gross income and what's left over is the net monthly income (NMI) of the wage earner.
Government always takes a share of the bounty.
Let's assume a consumer's gross monthly income is $4,000 and deductions equal $1,000. In this example, the net monthly income equals $3,000.
I have found that consumers are willing to pay up to 50% of their net income towards monthly housing expense. In this example, the consumer would be willing to pay $1,500/mo. in rent or housing expense.
The consumer's ability to handle the monthly housing expense associated with home ownership is critical to monthly financial planning.
If it's a stretch, beware of the snap.
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