chapter 2: income, benefits and taxes. 2-1 earned income and benefits complete the following...
TRANSCRIPT
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CHAPTER 2:
INCOME, BENEFITS AND TAXES
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Sources of Income
A. Wages: Hourly wages = paid for every hour worked
a. Minimum Wage = ___________ in 2010
b. States can set a wage _________than the federal rate.
c. An _____ hour day and ______ hour work week is standard.
$7.25
higher
8 40
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c. Overtime Pay: is_____ times the regular rate.
Example: What is the overtime pay rate if you are paid $10.00 an hour?
10.00 * 1.5 = $15.00
1 ½
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I. Sources of Income (Continue)
B. Salary is a set amount paid annually.
1. Do not keep time cards.
2. More flexibility in work hour
3. Work more than 40 hours a week
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I. Sources of Income (Continue)
C. Tips: A gift to a person performing a service (usually a percentage.)
a. Based on quality of service
b. Employers withhold taxes based on tips.
c. Minimum wage for tipped employee = ____ as long as with tip employee is making ________ or more on average.
$2.13/hr
$7.25
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I. Sources of Income (Continue)
D. Commission: a set fee or a percentage of a sale paid to an employee.
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GROSS PAY REINFORCEMENT
How much must an employer pay an hourly employee for hours worked beyond a regular work week?
1 ½ times their regular pay per hour.
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Formula for calculating Pay
Gross Pay =
Regular Hours Worked X Regular Pay
+ Overtime Hours Worked X Overtime Rate
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GROSS PAY REINFORCEMENT
Compute gross pay for these situations:
Regular hours worked: 40
Overtime hours worked: 5
Regular rate of pay: $5.85 an hour
Regular Pay = 40 X 5.85 = $234.00
.
Gross Pay = 234.00+ 43.90 = $277.90.
Overtime Pay Rate = $5.85 x 1.5 = $8.78
Overtime Pay = 5 hrs x $8.78 = $43.90
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GROSS PAY REINFORCEMENT
Compute gross pay for these situations:
Total hours worked: 43 hours ( in 5 days)
Regular rate of pay: $6.10
Regular Pay = 40 X 6.10 = $244.00
.Gross Pay = 244.00+ 27.45 = $271.45
Overtime Pay Rate = $6.10 x 1.5 = $9.15Overtime Pay = 3 hrs x $9.15 = $27.45
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GROSS PAY REINFORCEMENT
Compute gross pay for these situations:
Annual Salary: $18,000.00
Compute monthly gross pay
Monthly Gross Pay = 18,000/12 = $1,500.00
.
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II What is Self-Employment
A. Entrepreneur
B. Advantages of Owning Your Own Businessa. Owner makes all the decisions
b. Owners keep the profitsa. _____________ amount left after all expenses are
deducted from the revenues/sales of the business.Profit
http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/thinking-about-starting
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II What is Self-Employment
C. Disadvantages of Owning Your Own Business
a. Possibility of losing all the money put into the business. _
b. Risky, hard to get credit.
c. Long hours.
d. Responsible for all tasks.
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Types of Small Businesses
Two main types:
1. Lifestyle Business:
2. Venture Business:
The owner keeps the business small and the business exists for the lifetime of the owner.
The owner wants the business to grown into a large company with unlimited growth.
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What are Employee Benefits
Employers provide benefits to full time employees.
Employee may have to pay some of the cost for health insurance
Cafeteria Plan: a benefit plan that allows workers to choose from a number of options.
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Employee Benefits (cont)
Benefits ______________ the overall value a worker receives.
Benefits can directly increase an employees
________________________
increase
Disposable Income
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Types of Benefits
a. Pay without work1. Paid Holidays
2. Sick Leave
3. Personal Leave
b. Educational Benefits
c. Perks
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Types of Benefits (cont.)
d. Insurance1. Health Insurance
2. Group Life Insurance
3. Disability Insurance
4. Workers Compensation
e. Retirement Plansa. 401 K’s
b. Pension Plan
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HEALTH SPENDING ACCOUNT
Health Flexible Spending account Health Savings Account
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Complete the Following
1. John works 45 hours this week.. His hourly rate is $12.75. What is John’s gross pay?
Regular Pay = Regular Pay Rate x Regular Hours =
Regular Pay
= $12.75 X 40 hours = $510.00
Overtime Rate = Regular Pay Rate X 1.5 = Overtime
Rate
= $12.75 X 1.5 = $19.13
Overtime Pay = Overtime Pay Rate X Overtime Hours =
Overtime Pay
= $19.13 X 5 = $95.65
Gross Pay = Regular Pay + Overtime Pay = Gross Pay
= $510.00 + $95.65 = $605.65
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UNEARNED INCOME AND PAYMENTS
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What is Unearned Income?
A. Private Sources:1. Interest earned on
a. Savings Accounts
b. Certificate of Deposits (CD)
c. U.S. Savings Bonds
2. Dividends earned on a corporation’s profits distributed
1. Cash Dividends payment of a percentage of profits made to stockholders
2. Stock Dividends payment is made in the form of shares of stock.
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Unearned Income (cont.)
3. Pension Payments
4. Winnings/Prizes from the Lottery 5. Variable Income: Money received from
some type of activity other than working.
a. Royalties
b. Rent
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Unearned Income (cont.)
B. Government Transfer Paymentsa. Types:
1. Temporary assistance for needy families
2. Medicaid
3. Veterans Benefits
4. Social Security
5. Unemployment Compensation
SAFETY NET
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Unearned Income (cont.)
C. In-Cash Payments
1. Examples: Debit cards in a specified amount.
D. In-Kind Payments
Examples: Food Stamps, Rent subsidies, vouchers.
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What Types of Taxes Do You Pay?
A. Taxes based on consumptiona. _USE TAX – paid for goods and services provided by
the government___1. Examples:
b. Excise Tax – charged on the purchase of specific goods
1. Examples: Gasoline, cigarettes, and alcoholic beverages.
c. Sales Tax – added to the purchase price of consumer goods and services.
Known as a Regressive Tax – takes a larger % from low income.
Tolls, Parks, and Gasoline
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What Types of Taxes Do You Pay?
B. Taxes based on Incomea. Income taxes paid on earned and unearned income
b. Known as a Progressive Tax- the more you earn, the more you pay
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What Types of Taxes Do You Pay?
B. Taxes based on Wealtha. Property Tax: paid on real estate
a. Assessed value may not be the same as the Market Value.
a. Market Value – highest price the property would sell.
b. Business Personal Property Tax is levied against property other than real estate.
b. Federal Estate Tax
c. Gift Tax
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How do you benefit from Paying Taxes
A. Paying taxes _________ disposable income
B. BENEFITS1. Direct Benefits: benefits those paying taxes and other who
may not
a. Example: Social Security
b. Provide overall benefits
1. Public Good: Goods and services provided by gov’t.a. Example: National Defense, Public Education.
b. 3 Unique Qualities
a. Everyone benefits
b. No one can be excluded
c. Those who benefit the most often pay the less.
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Taxes and Other Deductions
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What are Paycheck Deductions
A. Employees are required to have $ withheld from your paycheck.
Gross Pay = Total Pay
Net Pay = Gross Pay – All Deductions
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Required Deductions
1. Income Tax Withholding = Federal and State.
1. Amount withheld based on your W-4
2. IRS provides details on how a person qualifies as a Dependent
3. Minor children are claimed as dependents on their parents’ tax return.
.
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Turn to Page 62 – Figure 2-3.1
Total Amount Withheld = $597.48 + 672.00 = $1.850.52
Percentage of gross pay taxes represent = 597.48/3120.00 = .19
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W-4 Form
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Required Deductions
2. Social security Tax: 2010 Social Security Tax = 6.2%
Self-Employed Social Security Tax = 12. 4%
Why is the Self-Employed rate higher than the Employee rate?
The self employed pays both the employer’s and employee’s portion
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Form 1-9
Employment Eligibility Verification Form
i. Form shows if employee is a U.S. citizen
ii. Documents used to verify
1. U.S. Citizenship
2. Lawful permanent resident
3. Alien authorize to work in the U.S
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Medicare Tax
Medicare Tax = 1.45%
Self-employed Medicare tax = 2.9%
FICA = Federal Insurance Contribution Act Tax combines Social Security and Medicare Taxes
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Workers Compensation Insurance
Pays medical and disability benefits to employees injured or contract disease on the job.
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W-2 Form
Will receive from each company you worked for during one year.
A summary for the income you earned that year and all amounts the employer withheld for taxes.
Federal, State, and local taxes.
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What are the taxes affect on gross pay?
If an employee earns $1,000.00
What is the Net Pay
Payroll Tax Rates
Social Security Tax Rate
Medicare Tax
Rate
Total Payroll Taxes
6.2%
1.45%
7.6%
$62.00
$14.50
$76.50
Gross Pay – Taxes – All other deductions =
Net Pay
1,000.00 – 76.50 = 923.50
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Calculate the following Net Pay
Social Security = 6.2%
Medicare = 1.45%
Federal Income Tax = $216.00
State Income Tax = $45.73
State Unemployment Insurance = .42%
Life Insurance $20.00 per pay
Savings Plan $100 per pay
In the following scenario determine the net pay if Matt gets paid every two weeks. Matt receives 48,500.00 annual salary
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How to get started
1. What is Matt’s gross pay amount every two weeks?
($48.500/52) * 2 = $1,865.38
Matt’s gross pay ever 2 weeks = $1,865.38
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How to get started – Matt’s Deductions.
Social Security =
Medicare =
Federal Income Tax = $216
State Income Tax = $45.73
State Unemployment Insurance =
Life Insurance = $20.00
Savings Plan = $100.
$1865.39 * .062 = $115.65
$1865.39 * .0145= $27.05
$1865.38 * .0042 = $7.83
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NET PAY = GROSS PAY TAXES DEDUCTIONS
Annual1865.39 Social Security $115.65 Life Insurance $20
Medicare Tax $27.05 Savings Plan $100
Fed. Inc Tax
$216.00
State Inc Tax $45.75
State Unempl. $7.83
$412.28$120
$1865.39-412.28-120.00 NET PAY = $1333.11
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SCENARIO
In this simulation, you will take on the role of Matthew Jones in order to reinforce how to complete Form W-4.
You are not married. You have no children. No one else depends on you for income or support.
In May, you graduated from college with a degree in marketing. .
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1 1
00
0
03
Matthew Jones
5022 Oak Tree Drive. ANYTOWN, US 00001
x
3
1
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Calculating Your Exemptions
W-4 – you can take less exemptions.
Fewer Exemptions = Greater Tax taken out
More Exemptions = Less Tax Taken Out
How do you know?
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Assignment
Go to my web site – Under the Links for Chapter 2– Select – Taxes
Click on W-4 Calculator
Which of the following Exemptions would you pick and why?
0 Exemptions,
1 Exemption
Or 2 Exemptions
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1 1
00
0
03
Matthew Jones
5022 Oak Tree Drive. ANYTOWN, US 00001
x
1
123-45-6789
Matthew Jones
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123-45-6789
11-123456 $48,500 $5,616.00
$51,100.00 $3,007.00
$ 51,100.00 $703.25ABC Bank5 Fox Run RoadDeptford, NJ 08012
Matthew Jones987 Maple StreetDeptford, NJ 08012
D $2,600.00
X
NJ 12345 $ 48,500.00 $1189.00 $51,100.00 Dept
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FORM 1040EZ
Use Matt’s W-2 form to fill out the 1040EZ Tax form. – Other needed information
Matt is single and can not be claimed as a dependent on anyone else’s tax return.
Matt earned $900.00 in interest Matt does not want to give any money to the
Presidential election fund. Matt works as a Bank Manager
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Sample Tax Return