Chapter 2 Income Benefits and Taxes What Are

Chapter 2 Income, Benefits, and Taxes

What Are the Sources of Earned Income? • A wage is pay for each hour worked. o Minimum wage – lowest rate by law o Overtime – 1½ times regular rate • A salary is pay for each month or year worked. • A tip is a gift of money for a service. • A commission is a set fee or percentage of a sale. 2 -1 Earned Income and Benefits Slide 2

Minimum Wage Laws 2 -1 Earned Income and Benefits Slide 3

What Is Self-Employment? • Self-employment is working for yourself. • An entrepreneur is someone who is selfemployed and owns a business. o Lifestyle businesses o Venture businesses 2 -1 Earned Income and Benefits Slide 4

Owning A Business Advantages • Make all the decisions • Work on your own schedule • Reap all the rewards and profits • • Disadvantages Carry all the risks Hard to get up and running Huge commitment Work long hours and can often not afford to hire help

Types of Small Business • Lifestyle Business: owner(s) intend to keep the business small. • Venture Business: Want their business to grow into a large company with unlimited growth and many workers.

How Do I Get Started? • If your parents own a business, you are much more likely to start a business. • A good place to start is talking with the advisors at a Small Business Development Center (SBDC)

What Are Employee Benefits? Benefits are forms of pay other than salary or wages. • Pay without work • Refers to times when an employee who is not work will be paid. • Sick Leave • Personal Leave 2 -1 Earned Income and Benefits Slide 8

What Are Employee Benefits? • Education: Plans that will pay for, share the cost of, reimburse money spent on education • Perks: Parking space, expense accounts, office with a view, etc. • Insurance/HSAs: Important benefit for many workers • Price paid for health insurance is called a premium. • Group Life: Life insurance for the employees • Disability: Provides payments to replace income lost when illness or injury prevents the employee from working. • Workers Compensation: pays for medical and disability benefits to workers who are injured or contract diseases on the job. 2 -1 Earned Income and Benefits Slide 9

What Are Employee Benefits? • Retirement plans: an account into which employees contribute portion of their earnings into retirement. • 401(k) • Profit-sharing plans: Allows employees to share profits of the business • Bonus • Stock option plans: Allow employees to buy stock at a reduced price. • Health Spending Account (HSA): Allows employees to set aside money (pretax) to pay for qualified medical expenses. • Often used by employees with high deductible insurance plans 2 -1 Earned Income and Benefits Slide 10

Success Skills Teamwork • • Set clear goals and create a plan. Define the duties of each team member. Identify how success will be measured. Identify problems the team may face. Have regular meetings. Build on the strengths of team members. Recognize accomplishments. 2 -1 Earned Income and Benefits Slide 11

What Is Unearned Income? Earned Income Unearned Income Variable Income Salaries and wages Interest Business profits Tips Dividends Rents Commissions Capital gains Royalties Bonuses Gambling winnings Farm Income Professional fees Alimony Social security benefits Pensions Annuities Unemployment compensation 2 -2 Unearned Income and Benefits Slide 12

Unearned Income • Money received from sources other than working in a job • Government Transfer Payments: Money and benefits received from local, state, or federal governments. – Social Security – Medicare • In-Cash Payments: money in the form of a check, debit card, or other direct payment given to a person needing assistance. • In-Kind Payments: Made indirectly on a person’s behalf or paid in a form other than money to those in need. – Food Stamps – Rent Subsidies

What Type of Taxes Do You Pay? • Taxes are based on consumption, income, and wealth. • Direct taxes are paid directly to the government. o Examples: income and property taxes • Indirect taxes are charged on goods or services bought by the consumer. o Examples: use, excise, and sales taxes 2 -2 Unearned Income and Benefits Slide 14

Taxes • Use Taxes: paid by people who use certain goods or services provided by the government – National Park tax • Excise Tax: charged on the purchase of specific goods, such as gasoline, tobacco, and alcohol. • Sales Tax: Added to the purchase price of consumer goods and services

Taxes Based on Income • Income Tax: to be paid on earned and unearned income. • Progressive Tax: The more you earn, the more you pay in tax.

Taxes Based On Wealth • Property Taxes: tax based on the property’s assessed value. • Business personal property tax: tax on property other than real estate. – Equipment • Estate Tax: taxes against the estate of a person who has died • Gift tax: taxes on money given over 13, 000 within a tax year.

How Do You Benefit from Paying Taxes? • Direct benefits o Examples: social security, police, national parks • Indirect benefits o Examples: public education for citizens, free vaccines 2 -2 Unearned Income and Benefits Slide 18

Tax the Rich Cartoon Slide 19

The Critque Slide 20

Building Communications Skills Critical Listening • Evaluate the information you hear. • Consider only important or relevant information. • Make good decisions based on what is accurate and useful. 2 -2 Unearned Income and Benefits Slide 21

Focus On. . . 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 22

What Are Paycheck Deductions? • A deduction is money withheld from a paycheck. o Required deduction examples: income tax, social security tax, Medicare tax o Optional deduction examples: health insurance, savings plan • Gross pay is total salary or wages. • Net pay is gross pay minus deductions. 2 -3 Taxes and Other Deductions Slide 23

Deductions • Exemption: person you claim on your tax return as a dependent – Dependent: person who depends on you for more than half of his or her support. • Social Security Tax: Withheld by government, provides a system of old-age, survivors, and disability insurance. • Medicare Tax: withheld by government to pay for medical care for people 65 and older.

What Tax Forms Must Be Filed? • • • W-2 – reports a worker’s taxable income for the year W-4 – how much money to withhold from your paycheck for federal taxes 1040 EZ – a tax return for filers with no dependents or itemized deductions 1040 A – a tax return that allows more options for income and deductions 1099 -INT – reports interest earned 2 -3 Taxes and Other Deductions Slide 25

Form W-2 Slide 26

Form W-2 2 -3 Taxes and Other Deductions Slide 27

W-4 Form Explained Slide 28

W-4 Form Slide 29

W-4 Cont. Slide 30

E-Filing • It is a fast and safe way to file a tax return. • You can e-file yourself or hire an authorized e-file provider. • Those who meet adjusted gross income requirements can e-file free. • Refunds are often received much quicker. 2 -3 Taxes and Other Deductions Slide 31

What Happens to Our Tax Dollars? Slide 32

The Critique Slide 33