Income and Deductions

If you have a job now, do you actually take home every dollar that you earn?  No. An average of 31% is deducted from your gross income.  For every dollar spent, you need to make $1.75 to replace it.

What is Gross Income?  The total amount a worker earns before deductions  involuntary deductions  voluntary deductions

What are payroll deductions?  Taxes (non-voluntary)  Voluntary  Insurance  Retirement / 401K  Union Dues

What are taxes?  Compulsory charges imposed on citizens by local, state, and federal governments  Largest amount of taxes a person pays is on his/her income

What kinds of taxes are withheld from your paycheck?  Federal and State Taxes  FICA (Social Security / Medicare)  Social Security Tax  Medicare By law, employers must pay taxes deducted from employee paychecks. 6.2% 1.45%

How is tax money used?  Provide public goods and services  What are some you feel are important?

What is Net Income?  “take home pay.”  amount remaining after deductions

Three methods employers may use to pay his/her employees?  Paycheck  Direct Deposit  Payroll Card

Paychecks  Employee responsible for handling paycheck  Immediately see payroll stub and deductions

Direct Deposit  Employer deposits gross pay into authorized employee’s bank account  Employee receives report detailing earnings and deductions  More secure  Funds immediately available

Payroll Card  Earnings electronically available on card  ATM withdrawals or to make purchases

What services are provided by the Internal Revenue Service?  Collect federal taxes  Issues regulations  Enforces tax laws written by the United States Congress

What two forms must an employee complete when beginning a new job?  Form W-4  Employee’s Withholding Allowance Certificate  Form I-9  Employment Eligibility Verification

Form W-4  Determines amount of federal taxes withheld from the paycheck  Indicates how many allowances the employee claims including dependents  (Dependent – a person who relies on the taxpayer for financial support)

Form I-9  Employment Eligibility Verification Form  Prohibits employers from hiring undocumented workers or others who are not eligible to work in the United States  Employee must provide documentation which establishes identity and employment eligibility  Acceptable documents: driver’s license, passport, Social Security card, birth certificate

What is Form W-2?  Wage and Tax Statement  amount of money earned  taxes paid  Required when filing income taxes  Employers must mail form to employee by January 31