Income Benefits and Taxes Chapter 2 Taxes are

Income, Benefits, and Taxes Chapter 2

Taxes are compulsory charges imposed by government on its citizens and their property.

Total: $3. 25 T Congressional Budget Office, March 2016

Earned Income and Benefits Earned Income – money derived from payed work Salary Wages Tips Commissions Bonuses

Earned Income and Benefits Minimum Wage $7. 25/hour (federal, 2009) $9. 00/hour (NE) Overtime 1. 5 x hourly rate for hours in excess of 40/week Other premium pay

Earned Income and Benefits Salary No time cards Typically management No overtime Tips and Commissions Tip/gratuity – gift of money Commission – set fee or percentage of sales

Self-Employment Entrepreneur Small businesses employ more workers than all large businesses Be your own boss Profits Long hours Full liability

Self-Employment Lifestyle Business remains small No resale value Venture Business Plan for growth Exit strategy

Self-Employment Small Business Administration "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters" Capital, contracts, counseling 23% government contracts to small businesses

Self-Employment Small Business Development Centers Federal-state partnerships Counseling Typically collocated with State, Community Colleges UNL, UNO, UNK, Wayne State

Self-Employment Do you have what it takes? Are you self-motivated? Do you take responsibility? Do you work hard? Business Plan

Employee Benefits Non-monetary compensation Typically full-time employees Fully funded/cost-sharing/employee paid Cafeteria Plan Not taxed Cost saving

Employee Benefits Pay Without Work/Paid Time Off Holidays Sick Leave Personal Leave

Employee Benefits Education Benefits Insurance Health Insurance Life Insurance Disability Insurance Workers’ Compensation Retirement Plans

Employee Benefits Profit-Sharing Stock Options Health Savings Account Flexible Savings Account Transportation Allowance/Reimbursement Optional Deductions

Unearned Income Unearned income - money received from sources other than working Interest Dividends Capital gains Variable income Rents Royalties

Types of 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

Transfer Payments Money and benefits received from local, state, and/or federal governments Social safety net In-cash payments In-kind payments

Transfer Payments Type of Benefit Beneficiaries Temporary assistance for needy families (TANF) Needy families with children; varies by state Medicaid Low-income families Veterans’ benefits Veterans and their families Supplemental security income (SSI) Low-income elderly and disabled State-provided medical plans Low-income residents Social security (SS) “Retirees”, disabled workers, and dependents Medicare “Retirees” with social security Unemployment compensation Laid off workers; varies by state Workers’ compensation Workers injured on the job

Taxes Consumption taxes Use taxes Excise taxes Sales tax Income taxes Wealth taxes Property taxes Estate/inheritance taxes Gift taxes

Taxes A Progressive Tax is one that requires a higher tax rate as income increases. A Regressive Tax is one that demands a decreasing proportion of one’s income.

Taxes Marginal tax bracket (or MTB) Marginal tax rate is the rate at which your last dollar of income is taxed.

Taxes



Taxes Practice legal tax avoidance, not tax evasion.

Benefits From Taxes Public goods and services National defense Justice system/police protection Education Social programs Indirect benefits Benefits to society as a whole

Total: $3. 7 T Congressional Budget Office, March 2016

Pay and Deductions Gross pay Net pay Deductions (withholding) Taxes Optional Deductions Form W-4 Exemptions


Withholding Federal income tax Social security tax Medicare tax State Income Tax Local income tax





Taxes Exemptions Deductions Reduce taxable income Credits Reduce tax

Taxes

Taxes

Questions?

Homework Complete “Take Action” p. 75 Complete the form Turn it in next week
- Slides: 40