CHAPTER 2 Income, Benefits, and Taxes 2-1 Earned Income and Benefits 2-2 Unearned Income and Payments 2-3 Taxes and Other Deductions

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. 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 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 Slide 4

What Are Employee 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 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 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 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. Slide 8

What Is 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 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 Slide 10

Types of Income Slide 11

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 Slide 12

Transfer Payments Slide 13

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 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 Slide 15

Partial List of U.S. Taxes Slide 16

How Do You Benefit from Paying Taxes? Direct Benefits Public goods: Government-provided goods and services paid for by taxes Indirect Benefits 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. 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 Slide 19

Paycheck Stub Slide 20

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 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 Slide 22

Sample Form W-4 Slide 23

Sample Form I-9 Slide 24

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 1040EZ: The short tax return form designed for single and joint filers with no dependents or itemized deductions Slide 25

Sample Form W-2 Slide 26

Sample Form 1040EZ Slide 27

How Do You Prepare an Income Tax Return? (continued) Other Tax Forms E-Filing Slide 28

Sample Form 1099-INT Slide 29