Income and Taxes. Salary – set amount of money earned by an employee per year or other fixed length of time A portion of the salary is paid at regular.

Chapter 8Income and Taxes

How do we earn money?

Types of Pay

Salary – set amount of money earned by an employee per year or other fixed length of time A portion of the salary

is paid at regular intervals

Each paycheck represents the salary divided by the number of pay periods

How much would each paycheck be?

$60,000 paid monthly =

$26,000 paid biweekly =

$30,000 paid on 1st & 15th =

Types of Pay

Wages – employee earnings that are paid by the hour, day, or item

Piecework – work for which wages are based on the number of items or pieces produced

How much would each paycheck be?

$7.50 per hour/ 40 hours

$16.00 per hour/ 80 hours

1000 pieces @ $.25/piece

Types of Pay

Commission – fixed percentage or amount of profit given to an employee for making a sale Some earn an hourly

wage also

What are some jobs that

are paid by commission?

How much would each paycheck be?

$15,000 in sales/10% Commission =

40 hours @ $5.00/hour +

$20,000 sales/5% commission =

Types of Pay

Tips – money given to an employee by customers in exchange for a service Most workers earn a

small hourly wage

List some jobs that work for tips.

Bonus – sum of money paid to an employee in addition to regular pay Christmas Reach safety goal Reach sales goal

It’s not just about the money!

Fair Labor Standards Act (FLSA)

Equal Pay The Fair Labor Standards Act includes

equal pay provisions that forbid employers for paying one person less than another person for the same work.

Fair Labor Standards Act (FLSA)

Minimum wage – lowest hourly rate an employer may legally pay most workers Raised periodically ($7.25)

Subminimum wage – set lower that the standard wage Full-time students Employees younger than 20 Employees who are developmentally

disabled

Types of Benefits

Insurance Savings and

Retirement Usually pre-tax Match program

Paid holidays Paid vacations Sick leave Additional

Education

Employment Classifications

Full-time – hold wage or salary positions of at least 35 hours per week, take part in employer sponsored benefit programs, tend to earn higher wages that employees working in other classifications

Part-time – employees who work less than 35 hours per week, may or may not be eligible for benefits

More Employment Classifications

Temporary – fill temporary vacancies or to help with additional work, do not receive benefits

Contract – hired for a specified period of time to complete a particular job

Challenge

You are trying to decide between two summer jobs. One pays $2 an hour above minimum wage and guarantees at least 25 hours per week, with up to 40 hours possible in busy periods. The other job pays $2 less than minimum wage. However, you’ll receive tips and can work as many or as few hours as you wish. Explain how you would compare the income potential of the two jobs? What else would you take into consideration and why?

How Employees are Paid

Weekly Every two weeks Once a month Twice a month

Direct deposit – pay is electronically transferred directly into the recipient’s bank account

Information on a Pay Stub Identification

Name, address, pay period, employee id

Earnings Number of hours

worked, Pay rate, Year to date

Gross pay – total amount of money earned during pay period

Deductions – anything that is subtracted from gross pay Taxes▪ Federal Withholding▪ Social Security▪ Medicare

Benefits▪ Insurance (health, life)▪ Retirement

Net pay – amount of pay after taxes and deductions

What do you know about…

Taxes

Deductions

April 15

Form W- 4

Exemptions

Returns

Income Tax Responsibilities Income tax is the largest source of

money used by the federal government to provide services to its citizens

How do you fulfill your responsibility to pay income taxes? Complete a form that allows your employer

to withhold income taxes for your pay. (W-4) File a tax return at least once a year and

pay any additional taxes owed.

Income Tax Withholding

Your employer will withhold, or take out, income taxes for every paycheck and send to the government.

Form W-4 Personal Information Exempt status Allowances

Form W-4

Personal Information Name Address Social Security

number Marital Status

Exempt Status Expect to earn to little

income Didn’t have to pay

taxes the previous year

Allowances – factors that affect the amount of income tax withholding The more allowances

you claim, the less tax your employer will take out

You should not claim more allowances than allowed, but you may claim less

Get Ready for Tax Time

File a tax return

Actual earnings Calculate tax owed Compare to tax

withheld▪ Pay difference▪ Refund

Internal Revenue Service (IRS)

April 15

What do you need? Form W-2▪ Wage and Tax

Statement▪ Sent by January 31

Form 1099 IRS instruction bookl

et and forms▪ Post Office▪ Library▪ Online

Personal Records

Completing Your Tax Return Filing status Exemptions

Dependent – someone who is supported by a tax payer’s income

Income Deductions

Tax deduction – reduces the amount of income that is taxed

Itemized deductions – amount actually spent on tax-deductible expenses

Standard deduction – set amount the IRS allows you to deduct without listing actual expenses

Taxable income Tax Owed Tax Credits – subtracted directly from the amount of tax

owed Final calculations

1040 - EZ

Form