Let’s calculate some paychecks! 1.Math: Reminder: Gross pay is calculated by multiplying regular hours times regular pay and adding any overtime hours

Let’s calculate some paychecks!

1. Math: Reminder: Gross pay is calculated by multiplying regular hours times regular pay and adding any overtime hours multiplied by overtime pay.

Do you remember HOW OVERTIME PAY IS CALCULATED??

Net pay is determined by subtracting any deductions from gross pay

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EXAMPLE:

You worked 45 hours last week and pay is $10/hr. What is your gross pay?Deductions: 10% federal income tax, 6.2% social security, 1.45% MedicareWhat is your NET PAY?

40 x $10 = $400 regular pay5 x $15 = $75 overtime pay (1 ½ x regular pay)Gross Pay = $475

$475 x 10% = $47.50 federal income tax$475 x 6.2% = $29.45 social security$475 x 1.45% = $6.89 medicareTotals Deductions = 47.50 + 29.45 + 6.89 = $83.84

$475 – 83.84 = $391.16 net pay (a.k.a. take home pay)

See Page 74 in your book: Making Academic Connections: Complete a.- d. with a partner

Answers to Page 74, Matha.Gross Pay = $368b.Gross Pay = $478.40c.Net pay = $304.47d.Net pay = $307.58

OpenerOpenerGet signed on to computerGo to IRS.govWho Must File? Handout #IRS Website: Forms and Publications TabSearch 1040EZ Instructions- See Page 7Also see pages 30-38 for tax tables – how

much will you owe?

An employee starting a new job has the option to choose how he is paid for the first twenty days of work. He works five days a week, for four full weeks. Make the best choice for the new employee after comparing the two options.

Double the Salary

Payment Option 2:The pay will be $0.01 for the first day. Each day the pay will double. So, it will be $0.02 the second day, $0.04 the third day, $0.08 the fourth day, etc. By the end of twenty days, how much money will the employee have made?

Payment Option 1:For the first twenty days of work, the new employee will be paid $500 a day.

Double the SalaryPayment Option 2:Day 1 $ 0.01 Day 11 10.24

Day 2 .02 Day 12 20.48

Day 3 .04 Day 13 40.96

Day 4 .08 Day 14 81.92

Day 5 .16 Day 15 163.84

Day 6 .32 Day 16 327.68

Day 7 .64 Day 17 655.36

Day 8 1.28 Day 18 1310.72

Day 9 2.56 Day 19 2621.44

Day 10 5.12 Day 20 5242.88

Total: $10,485.75

Payment Option 1:$500.00 a day * 20 days = $10,000

Solution

Payment Option 1:$500.00 a day * 20 days = $10,000.00

Payment Option 2:This is a better choice for the new employee as he will be making $10,485.75

This is $485.75 more than if he would have chosen Payment Option 1

Chapter 2

Income, Benefits, and Taxes

Chapter 2 Objectives

• List and discuss types of earned income and unearned income

• Discuss types of self employment, advantages and disadvantages

• Describe the types of taxes we pay and the benefits of paying taxes

• Read a paycheck, noting required and optional deductions from gross pay

• Discuss common federal tax forms

Slide 9

Slide 10

What Are the Sources of Earned Income?

2-1 Earned Income and Benefits

• A wage is pay for each hour worked.o Minimum wage – lowest rate by state lawo Overtime – 1½ times regular rate

• A salary is pay for each month or year worked (no timecards used)

• A tip is a gift of money for a service.• A commission is a set fee or percentage

of a sale paid to the salesperson.

Slide 11

What Is Self-Employment?


• Self-employment is working for yourself.• An entrepreneur is someone who is self-

employed and owns a business.Lifestyle businesses

ohobby, intends to keep it small, local, work it themselves

Venture businesses – ointends to grow into corporation and expand

Self- EmploymentSmall Business

Advantages

• ability to make decisions about running business

• can set your own hours• can keep all the Profits:

(Profits are the amount left after all expenses are deducted from the revenues or sales of the business).

Disadvantages

• If business fails, invested money is lost

• must take risks (risky)• hard to get credit• initial startup requires

long hours and a lot of work

• money is tight at first

Slide 13

What Are Employee Benefits?


Benefits are forms of pay other than salary or wages.• Pay without work- vacations, holidays, sick leave

• Education-tuition reimbursement

• Perks-parking spot, office with view, car, coffee station

• Insurance-health, dental, worker’s comp

• Retirement plans• Profit-sharing plans• Stock option plans

Slide 14

Unearned vs. earned income

•Earned• Wage/Hourly (minimum

wage and overtime)

• Salary (no time cards or counting hours)

• Tips • Commission (earned

on amount of sale)

•Unearned• Interest• Dividends (cash and

stock)• Pension (retirement

income)

• Government Transfer Payments: (EX: social security benefits, unemployment benefits, workers’ compensation)

Slide 15

What Type of Taxes Do You Pay?

2-2 Unearned Income and Benefits

• 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

What Types of Taxes Do You Pay?

Income Tax:is a Progressive tax – the more you earn the more you pay in tax

(tax brackets)

Property Taxpaid by those who own real estate.

CONSUMPTION TAXESUse taxes – paid when

using certain good and services provided by government. Ex: toll road

Excise taxes – charged on the purchase of specific goods. Ex: phone, utilities

Sales taxes – added to purchase price of goods

Slide 17

How Do You Benefit from Paying Taxes?• Direct benefits

o Examples: roads and highways, social security, police protection, national parks


• Indirect benefitso Examples: security

from armed forces, public education for citizens, free vaccines

Public Goods are paid for by your taxes

• Three unique qualities of public goods:– We all benefit (they raise the overall

standard of living in our country)– No one can be excluded from the benefits– People don’t necessarily benefit in

proportion to taxes paid

Slide 18

Opener: Calculate and reflect the following:

1. Figure out weekly and yearly earned income if working a job at minimum wage ($7.25/hr.) for 40 hours a week for 1 year.

W = Y =

2. Next figure out your weekly and yearly income if working a job at $12.00/hr for 40 hours a week for a year.

W= Y =

3. Now calculate the weekly and yearly income for a job with median starting pay for a Bachelor’s degree ($24/hr) for 40 hours a week for a year.

W = Y =Sum up your thoughts about these results

Communication Skills –see pg. 53

Slide 202-2 Unearned Income and Benefits

Critical Listening• Evaluate the

information you hear.• Consider only

important or relevant information.

• Make good decisions based on what is accurate and useful.

*Remember the example of the used car salesman

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.

Methods for Paying Employees

1. Paycheck• Paper check with stub• Least secure payment method because

the employee is responsible for handling the paycheck

2. Direct Deposit• Employers directly deposit employee’s

paycheck into the authorized employee’s bank account

3. Payroll Card• A payroll card electronically carries the

balance of the employee’s net pay

Where Does My Money Go?

• Imagine you have just started your first job! After the first week, you have earned $100. About how much money would you receive in your first paycheck??– A) $100– B) $84– C) $69– D) $55

Where Does My Money Go?

•Up to 31% of an individual’s paycheck is deducted. Your net paycheck many only be about $69!

•How do you get from $100 all the way down to $69?

•Let’s take a look…

Slide 25

What Are Paycheck Deductions?

• A deduction is money withheld from a paycheck.o Required deduction examples: income tax,

social security tax, Medicare taxo Optional deduction examples: health

insurance, life insurance, savings plan

• Gross pay is total salary or wages.

• Net pay is gross pay minus deductions.

2-3 Taxes and Other Deductions

What is the Gross Pay?

If Miss Patty Paycheck worked at Terrific Tacos for $6.00/hour for 15 hours a week what will her gross pay be?

What is Miss Patty Paycheck’s gross pay for a two week pay period?

15 hours x $6.00/hr = $90.00/week

# hours worked x wage = gross pay

30 hours x $6.00/hr = $180.00 for 2 weeks

Miss Patty Paycheck’s Paycheck

• Miss Patty Paycheck’s paycheck includes:– Gross Pay $180.00– Payroll Withholdings:

• Federal Withholding Tax $14.10• State Withholding Tax $5.45• FICA $13.77

• What is her Net Pay?• Gross Pay – Payroll Withholdings = Net

Pay$180.00 – ($14.10 + $5.45 + $13.77) = $146.68

Federal Withholding Tax

Federal Withholding Tax– The amount required by law for employers to withhold from earned

wages to pay taxes (Tax Brackets based on income: 10%, 15%, 25%, 28%, 33%, 35%)

– The amount of money deducted depends on the amount earned and information provided on the Form W-4 (In this case under 10% was deducted)

– Largest deduction withheld from an employee’s gross income

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00

Federal WithholdingState WithholdingFed OASDI/ EE or Social SecurityFed MED/ EE or MedicareMedical401K

$1,353.33

Year-to-dateCurrentDeductionsPay Type-Gross Pay

Employee Address293 Michael GroveBillings, MT 59102

Check Amount$1,102.98

Check #164

SSN201-92-4856

EmployeeBeakens, Joe

On-The-Go

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

State Withholding Tax

State Withholding Tax (Approx. 3% in this case)– The percentage deducted from an individual’s paycheck to

assist in funding government agencies within the state– The percentage deducted depends on the amount of gross

pay earned

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

FICA (Federal Insurance Contribution Act)

FICA– This tax includes two separate taxes: Fed OASDI/EE or Social

Security and Fed MED/EE or Medicare– These two taxes can be combined as one line item or itemized

separately on a paycheck stub

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Social Security

Social Security– Nation’s retirement program, helps provide retirement income

for elderly and pays disability benefits– Based upon a percentage (6.2%) of gross income, employer

matches the contribution made by the employee

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Medicare

Medicare– Nation’s health care program for the elderly and

disabled, provides hospital and medical insurance to those who qualify

– Based upon a percentage (1.45%) of gross income

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Pay Period 6/11/2004-7/11/2004

$1,502.10$250.35Totals

$503.46$117.72$636.00$244.92$0.00$0.00

$106.00$40.82$83.91$19.62$0.00$0.00


$1,353.33




Check #164

SSN201-92-4856


On-The-Go

Tax Forms – see pages 66-68

Slide 332-3 Taxes and Other Deductions

• W-2 – reports a worker’s taxable income for the year

• 1040EZ – a tax return for filers with no dependents or itemized deductions

• 1040A – a tax return that allows more options for income and deductions

• 1099- – reports interest earned and self-employment income (Ex: Landscaper, PT)

E-Filing – see page 66, 67

Slide 342-3 Taxes and Other Deductions

• 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.

Documents

Let’s calculate some paychecks! 1.Math: Reminder: Gross pay is calculated by multiplying regular hours times regular pay and adding any overtime hours