Who Ate My Paycheck? — Student Workbook

📖 Terminology

These are real terms you'll see on your pay stub, tax forms, and bank account. Tap any word to see what it actually means.

Gross Pay

noun tap ▾

The total you earned before anything comes out. If you worked 15 hours at $14/hr, gross pay = $210. This is the "before" number. What actually hits your bank is less.

Net Pay

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What actually lands in your account after taxes and deductions. This is the "after" number — and usually the surprise. The gap between gross and net is what this book is all about.

Withholding

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Money your employer takes out of your paycheck automatically and sends to the government. You never see it. It's gone before you get paid. Taxes work this way on purpose.

W-4

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The form you fill out on your first day of work. It tells your employer how much to withhold. Fill it out wrong and you could owe money come April — or lose out on money all year.

W-2

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The form your employer mails you every January. It shows your total pay and taxes withheld for the whole year. You need it to file your taxes. Guard it — it's got all your personal info.

FICA

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Federal Insurance Contributions Act — fancy name for Social Security + Medicare taxes. You pay 6.2% for SS and 1.45% for Medicare = 7.65% total. Your employer quietly pays the exact same amount on top of your wages.

Tax Bracket

noun phrase tap ▾

A range of income taxed at a specific rate. Important: you only pay the higher rate on income ABOVE the threshold — not on everything. Being in the "22% bracket" doesn't mean 22% on every dollar.

Roth IRA

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A retirement account you open yourself. You invest money you've already paid tax on — and everything it grows into is 100% tax-free when you retire. You can open one as soon as you have a job. Starting at 16 vs 26 = roughly $554,000 difference.

401(k)

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A retirement account your employer offers. You put money in from your paycheck. Many employers match part of what you contribute — that's literally free money. Never leave free money on the table.

1099-NEC

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The form for freelance or gig work income. Instead of a W-2, self-employed people get 1099s. Any client who pays you $600+ sends one. But you owe tax on ALL self-employment income even if nobody sends you a form.

Self-Employment Tax

noun phrase tap ▾

When you work for yourself, you pay BOTH halves of FICA — 15.3% total. That's the trap. The silver lining: you can deduct half of that SE tax from your income, AND deduct real business expenses (supplies, equipment, mileage) that W-2 employees can't. More tax, but more control.

Deduction

noun tap ▾

An expense that reduces the amount of your income that gets taxed. If you earn $5,000 from lawn mowing but spent $200 on equipment and gas, you pay tax on $4,800. Freelancers get way more deductions than regular employees.

🧠 Check-In Questions

Answer these after reading the book. Write what you actually understood — not what you think sounds right. There's a sample answer you can reveal for each one.

🎯 Real talk: If you can answer these questions, you're already ahead of most adults when it comes to understanding your money.

Question 1

You earn $300 working a summer job. Your paycheck says $246. What happened to the other $54?

That $54 is tax withholding. It broke down roughly like this: federal income tax (~$30), Social Security (~$18.60), Medicare (~$4.35), and maybe a small state tax. Your employer took it out before you even touched the money and sent it to the government on your behalf. This happens every single paycheck.

Question 2

What's FICA, and who actually pays it?

FICA stands for Federal Insurance Contributions Act. It covers Social Security (6.2%) and Medicare (1.45%) — that's 7.65% from you. Here's the part most people miss: your employer pays the exact same 7.65% on top of your wages. You both chip in. If you're self-employed though, you pay both halves yourself — 15.3% total.

Question 3

What's the difference between a W-2 and a 1099? When do you get each one?

W-2: You get this when you're a regular employee. It shows your total wages and how much was withheld. Your employer already took out taxes for you all year. 1099-NEC: You get this for freelance or gig work when a client pays you $600 or more. No taxes were taken out — you owe them yourself. This is why freelancers need to save a chunk of every payment.

Question 4

What is a Roth IRA, and why does starting one at 16 matter so much more than starting at 26?

A Roth IRA is a retirement account you open with money you've already paid tax on. The growth inside it is 100% tax-free — you pay no tax when you take it out in retirement. Starting at 16 vs 26 makes a massive difference because of compound interest: money grows on top of itself year after year. The book shows starting at 16 creates roughly $554,000 more at retirement than waiting until 26 — with the same annual contributions.

Question 5

In your own words, what does "tax bracket" mean — and why does being in a higher one NOT mean you pay that rate on everything?

A tax bracket is a range of income with a specific tax rate attached. The U.S. uses a marginal system, which means you only pay the higher rate on income above each threshold — not on your whole income. So if you're in the 22% bracket, that doesn't mean 22% on everything. Your first chunk of income is taxed at 10%, the next at 12%, and only the income above the 22% line gets taxed at 22%. Getting a raise never makes you take home less money overall.

✏️ Activities

Seven real-world exercises. Each one ties directly to something in the book. Tap to open any activity.

💵

Activity 1 — Decode Your First Pay Stub

The exact scenario from the book • Do the math yourself

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You got a part-time job — 15 hours at $14/hr = $210 gross. Here's what your pay stub looks like. Fill in every blank using the percentages given.

💸 LITTLE SCOOP CO.Pay Period: 2 weeks

Gross Pay (15 hrs × $14)$210.00

– Federal Income Tax (10%)

– Social Security (6.2%)

– Medicare (1.45%)

– State Income Tax (~1%)

NET PAY — what hits your bank

Federal tax: $210 × 10% =

Social Security: $210 × 6.2% =

Medicare: $210 × 1.45% =

State tax: $210 × 1% =

Total taken out (add them up) =

Net Pay: $210 – total =

Federal tax: $21.00 Social Security: $13.02 Medicare: $3.05 State: $2.10
Total out: $39.17 Net Pay: $170.83

You kept about 81% of what you earned. Now you know who ate the rest.

⚖️

Activity 2 — FICA: Who Pays What?

The hidden tax your employer pays on your behalf

▶

Most people only see their half of FICA. But your employer quietly pays the same amount. Fill in the split:

👤 You Pay

SS: % + Medicare: %

🏢 Employer Pays

Same split — matches yours exactly

If you're self-employed, total FICA you pay =

On $3,000 of freelance income, SE tax alone =

You pay: 7.65% (SS: 6.2% + Medicare: 1.45%)
Employer: 7.65% — identical split
Self-employed total: 15.3%
SE tax on $3,000: $459 — before any income tax

📊

Activity 3 — Crack the Tax Bracket Myth

Most adults get this wrong • You won't after this

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The big myth: "If I earn too much I'll move into a higher bracket and take home less." That's wrong. Here's why — use these 2025 brackets to work it out:

Rate	Income Range (single filer)
10%	$0 – $11,925
12%	$11,926 – $48,475
You earn $25,000. Let's find your actual tax bill.

Tax on first $11,925 (at 10%) =

Income above $11,925: $25,000 – $11,925 =

Tax on that remaining amount (at 12%) =

Total federal tax owed =

Effective rate: total tax ÷ $25,000 =

You're in the "12% bracket" — but is your effective rate 12%?

Tax on $11,925 at 10% = $1,192.50
Remaining income: $25,000 – $11,925 = $13,075
Tax on $13,075 at 12% = $1,569.00
Total federal tax: $2,761.50
Effective rate: $2,761.50 ÷ $25,000 = ~11%

You're technically "in the 12% bracket" but your effective rate is only 11%. A raise will never make you take home less overall — that's the myth, busted.

🏦

Activity 4 — The $554,000 Head Start

Roth IRA compound math • Starting young is your biggest advantage

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Two people each put $3,000/year into a Roth IRA earning 8%/year average. The only difference: when they start. Fill in the outcomes:

Start at 16

49 years of growth

100% tax-free at retirement

Start at 26

39 years of growth

100% tax-free at retirement

Never start

0 years of growth

No retirement savings

Difference between starting at 16 vs. 26 ≈

What's the first thing you'd need in order to open a Roth IRA? (hint: it's in the book)

What's one thing you could cut back on now to put $50/month toward a Roth IRA?

Start at 16: ≈ $1,460,000 tax-free
Start at 26: ≈ $906,000 tax-free
Difference: roughly $554,000 — from just 10 extra years of compounding.

To open a Roth IRA: you need earned income (a paycheck from a real job). The moment you have any earned income, you're eligible. You can open one at any major brokerage — Fidelity, Schwab, or Vanguard are popular options.

🛠️

Activity 5 — The Side Hustle: Trap & Upside

Freelance, gig work, selling things online — the full picture, good and bad

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Working for yourself hits different at tax time — and not always in a bad way. There's a real downside AND a real upside. You need to know both.

⚠️ The Trap

You pay BOTH halves of FICA — 15.3% instead of 7.65%
No employer withholds anything — the full tax bill lands on you at filing time
Miss it and you'll owe a penalty for underpayment
Rule of thumb: set aside 25–30% of every freelance payment the day you receive it

✅ The Silver Lining

You can deduct half of SE tax from your income — lowering your tax bill automatically
Legitimate business expenses reduce your taxable profit: supplies, equipment, mileage, a portion of your phone bill
W-2 employees can't deduct most of this — you can
A separate business checking account makes tracking everything easy and proves your business is real to the IRS

Now run the numbers. You shovel snow all winter — $800 gross, $35 in supplies:

Gross income from snow shoveling

Minus business expenses (supplies) — these reduce taxable profit

Net profit (what actually gets taxed)

Self-employment tax (15.3% of net profit)

SE tax deduction (you get to deduct half of SE tax from income)

Federal income tax (~10% on profit after SE deduction)

Total taxes owed

What you actually keep

What IRS form reports your self-employment profit/loss?

If you bought a $60 shovel specifically for this business, could you deduct it? Why?

Gross: $800 Expenses: $35 Net profit: $765
SE tax (15.3%): $117.05
SE deduction (half of $117.05): $58.53 — subtracted from taxable income
Taxable income after deduction: $765 – $58.53 = $706.47
Income tax (~10%): $70.65
Total taxes: ~$187.70 You keep: ~$612

The SE deduction saved you about $6 vs. not claiming it — small here, but on $10,000 of freelance income it saves around $60 in income tax.

Form: Schedule C Client form (if $600+): 1099-NEC

The shovel: Yes — if it's used exclusively for the business, it's a legitimate deduction. That reduces your net profit, which reduces both SE tax and income tax. This is the silver lining: every real business expense you track lowers your bill. W-2 workers don't get this.

🎯

Activity 6 — Your First Money Plan

Turn what you learned into an actual plan for your first (or next) paycheck

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This one isn't math — it's about you. Answer honestly.

What's a job you have now, want this summer, or are planning to get?

Estimate your monthly gross pay from that job:

After about 20% in taxes, your estimated net pay is:

What's one thing you'd spend net pay on immediately?

What's one thing you want to save for? How many paychecks would it take?

If you could put just $25–$50/month into a Roth IRA right now, what's ONE thing you'd cut to make it possible?

💡 Quick reminder: You need earned income to open a Roth IRA — meaning income from a real job. The moment you get your first paycheck, you're eligible. Don't wait.

Activity 7 — Ellie & Donnie, All Grown Up

Same two characters, bigger disagreements — where do YOU land?

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In this book, Ellie and Donnie are adults navigating the real financial system. They still disagree — just about bigger stuff now. Read each position and write your honest reaction.

Ellie says:

"Lower taxes mean more money in people's pockets. They spend it, businesses grow, and more jobs get created. The government should get out of the way."

Donnie says:

"Higher taxes on those who can afford it pays for schools, healthcare, and a safety net. A rising tide lifts all boats — but only if we invest in the infrastructure together."

What's one thing you agree with in Ellie's argument?

What's one thing you agree with in Donnie's argument?

Where do you personally land? (There's no wrong answer — just think it through)

📖 Terminology

🧠 Check-In Questions

✏️ Activities

👤 You Pay

🏢 Employer Pays

Start at 16

Start at 26

Never start

⭐ My Progress