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Chapter 2 Income, Benefits, and Taxes

Chapter 2 Income, Benefits, and Taxes. What Are the Sources of Earned Income?. A wage is pay for each hour worked. Minimum wage – lowest rate by law Currently $7.25 in PA (Federal) Overtime – 1½ times regular rate A salary is set pay for each month or year worked.

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Chapter 2 Income, Benefits, and Taxes

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  1. Chapter 2 Income, Benefits, and Taxes

  2. What Are the Sources of Earned Income? • A wage is pay for each hour worked. • Minimum wage – lowest rate by law • Currently $7.25 in PA (Federal) • Overtime – 1½ times regular rate • A salary is set pay for each month or year worked. • Generally no overtime 2-1 Earned Income and Benefits Slide 2

  3. What Are the Sources of Earned Income? • A tip is compensation for a service. • Often a percentage • Different minimum wage laws • A commission is a set fee or percentage. • Sales: • Cars • Real estate • etc 2-1 Earned Income and Benefits Slide 3

  4. What Are Employee Benefits? Benefits are forms of pay other than salary or wages. Benefits can increase disposable income. Disposable income: money available to spend or save after taxes have been paid 2-1 Earned Income and Benefits Slide 4

  5. Types of Employee Benefits • Pay without work • Vacation • Sick days • Personal days • Paid holidays • Education • Perks • Parking spaces • Expense account 2-1 Earned Income and Benefits Slide 5

  6. Types of Employee Benefits • Insurance/HSAs • Health • Life • Disability • Workers’ Comp • Retirement plans • 401k • 403b • Stock option plans 2-1 Earned Income and Benefits Slide 6

  7. What Is Unearned Income? • Money received from a source other than working in a job • Private • Government • Can you think of an example? 2-2 Unearned Income and Benefits Slide 7

  8. What Is Unearned Income? 2-2 Unearned Income and Benefits Slide 8

  9. What Type of Taxes Do You Pay? • Taxes are based on consumption, income, and wealth. • Direct taxes are paid directly to the government. • Examples: income and property taxes • Indirect taxes are charged on goods or services bought by the consumer. • Examples: use, excise, and sales taxes 2-2 Unearned Income and Benefits Slide 9

  10. Use Taxes • Only those who use the product or service • Examples: • Tolls • Parks 2-2 Unearned Income and Benefits Slide 10

  11. Excise Taxes • Only those who purchase the product or service • Examples: • Gas • Cigarettes • Alcohol • Utilities • Luxury taxes 2-2 Unearned Income and Benefits Slide 11

  12. Other Taxes • Sales Tax • Income Tax • Wealth Taxes • Property • Estate • Inheritance • Gift 2-2 Unearned Income and Benefits Slide 12

  13. How Do You Benefit from Paying Taxes? • Direct benefits • Examples: social security, police, national parks • Public goods • Indirect benefits • Examples: public education for citizens, free vaccines 2-2 Unearned Income and Benefits Slide 13

  14. Social Security Social Security Benefits • Workers pay into the social security fund through payroll deductions. • A social security number is assigned to each person. • Employers match the payments. • Upon retirement, workers receive a monthly benefit check. 2-2 Unearned Income and Benefits Slide 14

  15. What Are Paycheck Deductions? • Adeductionis money withheld from a paycheck. • Required deduction examples: income tax, social security tax, Medicare tax • Optional deduction examples: health insurance, life insurance, retirement plans 2-3 Taxes and Other Deductions Slide 15

  16. Understanding Your Paycheck • Gross pay is your total salary or wages. • Net pay is your gross pay minus deductions. • AKA – Take Home Pay 2-3 Taxes and Other Deductions Slide 16

  17. Understanding Your Paycheck 2-3 Taxes and Other Deductions Slide 17

  18. Understanding Your Paycheck • Income Tax • Amount based on exemptions (people you claim on your tax return as a dependent) • FICA (Federal Insurance Contributions Act) • Made up of Social Security Tax and Medicare Tax • You pay half and employer pays other half • Social Security – 6.2% • Medicare – 2.9% 2-3 Taxes and Other Deductions Slide 18

  19. Form W-4 Withholding allowances (exemptions) 2-3 Taxes and Other Deductions Slide 19

  20. Form W-2 • Reports a worker’s taxable income for the year 2-3 Taxes and Other Deductions Slide 20

  21. Filing Tax Returns • Form used depends on types of income and deductions • 1040 – Long version; used for itemized deductions/complicated tax returns • 1040A – a tax return that allows more options for income and deductions • 1040EZ – atax return for filers with no dependents or itemized deductions 2-3 Taxes and Other Deductions Slide 21

  22. Filing Tax Returns • 1099-INT – reports interest earned • 1098 E – reports student loan interest paid • All forms mailed out by January 31 • Must file by: April 15 • E-Filing is a fast, easy option 2-3 Taxes and Other Deductions Slide 22

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