CHAPTER 2 Income Benefits and Taxes 2 1

CHAPTER 2 Income, Benefits, and Taxes 2 -1 Earned Income and Benefits 2 -2 Unearned Income and Payments 2 -3 Taxes and Other Deductions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2 -1 Earned Income and Benefits Learning Objectives 2 -1. 1 List and discuss types of earned income, such as wages, salaries, tips, and commissions. 2 -1. 2 Describe employee benefits and their role in employee compensation. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 2

What Are Sources of Earned Income? ● Wages • Minimum wage: The lowest pay rate allowed by law for each regular hour of work • Overtime pay: Pay received for hours worked in addition to regular hours ● Salaries © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 3

What Are Sources of Earned Income? (continued) ● Tips and Commissions • Commission: A set fee or percentage of a sale paid to an employee instead of or in addition to salary or wages © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 4

What Are Employee Benefits? ● Benefits • Forms of compensation in addition to salary or wages ● Disposable income • Money available to spend or save after taxes have been paid ● Pay Without Work • Sick leave: Paid time away from work due to illness © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 5

What Are Employee Benefits? (continued) ● Pay Without Work (continued) • Personal leave: Paid time away from work for personal reasons ● Insurance ● Health Spending Accounts © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 6

What Are Employee Benefits? (continued) ● Retirement Plans • Retirement plan: An account into which employees voluntarily contribute a portion of their earnings for their retirement; employers may match these contributions ● Incentives • Profit sharing: A benefit that allows employees to share a portion of the business’s profits ● Perks © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 7

2 -2 Unearned Income and Payments Learning Objectives 2 -2. 1 Name private and governmental sources of unearned income. 2 -2. 2 List the types of taxes levied against individuals. 2 -2. 3 Discuss the benefits of paying taxes, both direct and indirect. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 8

What Is Unearned Income? ● Unearned income • Money received from sources other than working ● Private Sources • Interest: Money earned on savings accounts and other funds • Dividends: A portion of a corporation’s profits distributed to stockholders © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 9

What Is Unearned Income? (continued) ● Government Transfer Payments • Transfer payments: Money and benefits received from local, state, or federal governments • In-cash payments: Money in the form of a check, a debit card, or other direct payment given to a person needing assistance © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 10

Types of Income © 2017 Cengage Learning®. May not be scanned, copied or duplicated,

What Is Unearned Income? (continued) ● Government Transfer Payments (continued) • In-kind payments: Payments made indirectly on a person’s behalf or paid in a form other than money © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 12

Transfer Payments © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or

What Types of Taxes Do You Pay? ● Taxes Based on Consumption • Sales tax: A tax levied as a percentage of the purchase price of goods and services sold to consumers • Use tax: A tax charged on the use, storage, or consumption of a good that was purchased in one state but used in another state • Excise tax: Tax charged on the purchase of specific goods and services © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 14

What Types of Taxes Do You Pay? (continued) ● Taxes Based on Income ● Taxes Based on Wealth • Property tax: A wealth tax based on the assessed value of owned real estate • Estate and Gift Taxes ● Other Taxes © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 15

Partial List of U. S. Taxes © 2017 Cengage Learning®. May not be scanned,

How Do You Benefit from Paying Taxes? ● Direct Benefits • Public goods: Government-provided goods and services paid for by taxes ● Indirect Benefits © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 17

2 -3 Taxes and Other Deductions Learning Objectives 2 -3. 1 List the mandatory and voluntary deductions from gross pay. 2 -3. 2 Explain how to prepare an income tax return. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 18

What Are Paycheck Deductions? ● Gross pay • Total salary or wages earned during a pay period ● Net pay • The amount of your paycheck after deductions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 19

Paycheck Stub © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or

What Are Paycheck Deductions? (continued) ● Required Deductions • Income Tax Withholding • Exemption: A person claimed as a dependent on a tax return • Dependent: A person who depends on you for more than half of his or her support • Social Security Tax: A withholding tax that pays for Old-Age, Survivors, and Disability Insurance (OASDI) benefits © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 21

What Are Paycheck Deductions? (continued) ● Required Deductions (continued) • Medicare tax: A tax that pays for medical care for retired persons age 65 and older who receive Social Security benefits • Workers’ Compensation Insurance • Workers’ compensation: An insurance plan that pays medical and disability benefits to employees injured on the job ● Optional Deductions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 22

Sample Form W-4 © 2017 Cengage Learning®. May not be scanned, copied or duplicated,

Sample Form I-9 © 2017 Cengage Learning®. May not be scanned, copied or duplicated,

How Do You Prepare an Income Tax Return? ● Form W-2: A form used to report taxable income that a worker received during the calendar year ● Form 1040 EZ: The short tax return form designed for single and joint filers with no dependents or itemized deductions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 25

Sample Form W-2 © 2017 Cengage Learning®. May not be scanned, copied or duplicated,

Sample Form 1040 EZ © 2017 Cengage Learning®. May not be scanned, copied or

How Do You Prepare an Income Tax Return? (continued) ● Other Tax Forms ● E-Filing © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 28