Chapter 23 Understanding Income and Taxes

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Chapter 23Understanding Income and Taxes

• Professional Communications
• Mrs. Alander

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Objectives

• Describe different forms of income and fringe
  benefits an employee can receive for doing a job.
• Explain gross pay and net pay, and paycheck
  deductions.

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The World of Work and Income!

• Understanding what goes into your paycheck and
  what goes out is important!
• Most of the money earned is yours to spend, but
  what happens to the money that is taken out of
  your paycheck?

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Forms of Income

• Earned income- money you receive for doing a job.
  
• Wages- set amount of pay for every hour of work.
• Minimum wage set by law, lowest amount of money
  an employer is allowed to pay a worker per hour.
  (7.25 in Texas)
• Salary- set amount of money paid for a certain
  period of time. Full year and amount is divided
  into equal payments.
• Commission- Percentage of sales they make.
• (Ex. Car salesman, realtor)

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Forms of Income

• Piecework fixed amount of
• money for each piece of work
• they do.
• Tips small amounts of money
• given by customers to
• service-related workers.
• Example bellhop, food servers, etc.
• Bonus extra money for past performance.
• Profit sharing employees hard work results in
  greater profits for the company, the company
  returns some of those profits to the employee
• Fringe benefits extra financial rewards.
  (company pays for insurance and a retirement
  plan, etc.)

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Tax TermsExemption- a source or amount of
income on which a person is not required to pay
taxes.W-4 Form-The Employees Withholding
Allowance Certificate that shows the employer how
much tax to withhold from an employees
paychecks.FICA-the amount of social security
tax withheld from a paycheck.W-2 form-A Wage
and Tax statement of the amount an employee was
paid in the previous year.It also shows the
income tax and social security tax withheld
during the year.
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Understanding Your Paycheck

• Where is all the money I earned?
• Paycheck stub this will tell you how much you
  earned and how much was deducted from your
  earnings.
• Deductions small amounts of money subtracted
  from your total pay. Other possible
  deductions-Federal income tax, FICA other
  paycheck deductions-state/local income tax,
  retirement plan, union dues, insurance premiums,
  savings plan, charitable contributions
• Gross pay total amount earned for a pay period
  before deductions are subtracted.
• Net pay (take home pay) is gross pay minus
  deductions.
• Social security tax withheld
• Federal income tax

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Why do we pay taxes to the government?

• This allows the government to provide services
  and facilities such as parks, highways, public
  schools and police and fire protection.

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How does Uncle Sam determine how much you pay?
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Salary a set amount of money paid to an employee
for a certain period of time. (Ex 40,000 annual
salary)

• Hourly wage a set amount of money paid to an
  employee per hour (Ex 10/ per hour)
• Overtime pay usually 1 ½ to 2 times the
  workers regular wage. Salaried workers are not
  eligible for overtime pay.

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Types of Taxes

• Personal income tax on you earn
• Social security tax tax on percentage of you
  earn. It is used to pay for the social security
  program.
• ?Both personal and social security taxes are
  deducted from your paycheck and sent to the
  federal govt.
• The Social Security Program provides a basic
  level of income that people can supplement with
  savings, pensions, investments, or other
  insurance, retirement benefits, survivor
  benefits, and disabled benefits.
• Property tax tax on value of your personal
  property and real estate. (houses, cars, land,
  boats and expensive jewelry)
• Sales Tax-tax on goods and services. Pay at time
  of purchase.
• Excise Tax-tax places on certain products or
  services. (Ex gasoline, cigarettes, liquor and
  telephone service.

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Supplemental Security Income

• (SSI) is another program administered by the
  Social Security Administration. It pays benefits
  to individuals with disabilities who have few
  possessions or little income.
• Unlike social security, these benefits are not
  based on your work history and the amount of your
  past earnings.

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More government benefits

• Workers compensation-
• Insurance program
• managed by the state.
• It provides payments
• to workers when they
• are injured on the job.
• Benefits of workers
• comp include
• medical care,
• disability income, rehabilitation and death
  benefits.

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Unemployment Insurance

• Insurance that provides benefits to workers who
  have lost their jobs.

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Government Healthcare Coverage

• Medicare The federal governments health
  insurance program for people 65 years old or
  older, people of any age with permanent kidney
  failure and others with
• certain disabilities.
• Medicaid The federal
• governments program that
• pays for health care services for people who
  cant afford payment.

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Filing Taxes

• Deadline April 15
• each year.
• 1040 used by
• people that itemize
• their deductions and
• oftentimes requires
• help from a tax advisor.
• Much more comprehensive.
• 1040EZ/1040A relatively simple to fill out and
  used by an individual with no deductions.