Understanding Income and Taxes Chapter 23 Understanding Income and Taxes

DO NOW List at least 3 different forms of income (ways to get paid by your employer) For each form of income, give 2 examples of the types of jobs or careers usually associated with it.

Forms of Income Earned Income - How you will get paid by your employer Different ways to get paid by your employer Wages Salary Commission Piecework Tips Bonus Profit Sharing Fringe Benefits

More Experienced = Higher Wages Wage - A set amount of pay for every hour of work. (Hourly Wage) Depends on the type of job. The more skilled or more experienced usually earn a higher wage than the beginning workers. More Experienced = Higher Wages What would the least experienced/beginning workers get paid????? Minimum Wage

Minimum Wage The lowest hourly rate of pay an employee can get paid by his/her employer. What is Minimum Wage in New Jersey? $8.38 per hour

Minimum Wage $8.38 per hour Minimum Wage By State PA? NY? CA? KS? GA? What is the minimum wage in NJ? $8.38 per hour What is the minimum wage in other states? PA? NY? CA? KS? GA? $7.25 $8.75 $9.00 $7.25 $5.15 Minimum Wage By State

Minimum Wage Like Who???? Waiters and Waitresses Some employees are excluded from the minimum wage law….. Like Who???? Those who earn TIPS can lawfully be paid less than MW Waiters and Waitresses

Wages Workers paid by the hour will get a paycheck based on how many hours they work each week. Example – John works at McDonald’s. He earns a wage of $8.00 per hour. He works 20 hours per week. How much would he receive before taxes? $8.00 per hour X 20 hours $160.00

Wages Examples Joe works 24 hours a week. He earns $8.20 per hour. How much will he earn in one week? $8.20 per hour X 24 hours $196.80 Jim’s hourly wage is $9.50 per hour. He works 20 hours each week. How much will Jim’s paycheck be before taxes? $9.50 per hour X 20 hours $190.00

Overtime Pay Anything OVER 40 hours a week. Paid for each hour worked OVER the maximum hours allowed. Anything OVER 40 hours a week. Paid at least 1.5 times their regular rate.

Overtime Pay 4 Step Process Calculate Regular Pay Regular Rate X 40 Hours Calculate Overtime Rate Regular Rate X 1.5 Calculate Overtime Pay Overtime Rate X Overtime Hours Calculate Total Pay Overtime Pay + Regular Pay

Teachers; Managers; Office Workers Salary Workers may receive salaries instead of hourly wages. Salary – is a set amount of money paid for a certain period of time. For example – an annual salary is the total amount of money for what period of time? Full Year What types of workers earn salary? Teachers; Managers; Office Workers

Commission Commission – a percentage of the sales they make. Mostly workers in sales positions earn a commission Commission – a percentage of the sales they make. Example – If you earn a 10% commission on your sales. How much will you make off $100 in sales? $100 X .10 (10%) $10

Piecework Fixed amount of money for each piece of work they do. For example, Paintings, Drawings, Assembly Line Toys The more you produce, the more money you make More produce = More $$$$$

Tips Tips – Small amounts of money given by customers to service-related workers in return for service. One way to reward a worker for good service Encourage a worker to continue providing good service. What types of workers earn tips??????? Waiters/Waitresses, Cab Drivers, Bar Tenders Are the tips their only source of income????

Bonus Bonus – extra payment in addition to the workers’ regular pay. 2 Types Incentive Year End Bonus

Incentive Bonus Purpose – to encourage workers to increase their production. Example Sales person receives a bonus if their sales are the highest in the company. What are some other example????

Year-End Bonus Is given to employees, usually at the end of the year. The amount will be determined on: Companies profits Employee Performance Employee’s length of time at company

Profit Sharing When the company earns a larger amount of profit: The company gives back some of that profit to its workers Often rewarded in the form of company stock.

Fringe Benefits Examples Vacation Time Holidays Sick Time Also known as Health Benefits or Benefits Package Not of monetary value. Given to employees in addition to their regular paycheck. Examples Vacation Time Holidays Sick Time Health/Life Insurance

Paychecks Gross Pay vs. Net Pay Total amount earned for the pay period Paycheck Stub – attached to your paycheck & contains important information about your earnings: Gross Pay vs. Net Pay Total amount earned for the pay period Lists deductions taken from your earnings

Gross Pay Vs. Net Pay Gross Pay – (Pre-Pay) Total amount earned for a period before deductions are subtracted. Net Pay – (take home pay) This is your Gross Pay minus deductions. (look back at the paycheck on last slide)

Do Now Which are the 3 required tax deductions that ALL employees pay? Everyone who works in the United States are required to pay income taxes. Which are the 3 required tax deductions that ALL employees pay? What are some other deductions?

Deductions Required deductions include: Federal Income Tax Deductions – different amounts of money subtracted from your Gross pay. Required deductions include: Federal Income Tax State Income Tax Social Security.

Deductions Tax Exemptions - Income that a person DOES NOT pay tax or the amount of tax is reduced. Examples – Any dependent including yourself Spouse Blindness Age

Deductions Federal Income Tax Military and Government Purposes The amount withheld is found on the: Federal Withholding Tax Tables: Your EARNINGS (Gross Pay) Your number of EXEMPTIONS. Federal Income Tax Withholding Tables - 2015

Deductions State Income Tax Used for State and local purposes Libraries Schools Parks Roads Public Transportation The amount withheld is found on the: State Withholding Tax Tables: Percentage (%) of Gross Pay Percentage (%) based on EARNINGS amount

State Income Tax Withholdings Single Taxpayers % Deducted Weekly Income Annual Income 1.40% Up to $384 Up to $20,000 1.75% $385 - $673 $20,001 - $35,000 3.50% $674 - $769 $35,001 - $40,000 5.525% $770 - $1,442 $40,001 - $75,000 6.37% $1,443 - $9,615 $75,001 - $500,000 8.97% Over $9,615 Over $500,000 Married TaxPayers $385 - $961 $20,001 - $50,000 2.45% $962 - $1,346 $50,001 - $70,000 $1,347 - $1,538 $70,001 - $80,000 $1,539 - $2,884 $80,001 - $150,000 $2,885 - $9,615 $150,001 - $500,000

Deductions Social Security Tax Retirement and Disability. A Fixed Percentage (%)of Gross Pay. We will use 7.65% (.o765 X Gross Pay) Appears on Paychecks as FICA. FICA – Federal Insurance Contributions Act.

Calculating Net Pay DJ Johnson works 36 hours for $9.00/hour. (single & No allowances) Federal Income Tax =USE TABLE NJ State Income Tax =USE TABLE Social Security Tax =7.65% of Gross Pay .0765 X Gross Pay

Calculating Net Pay Calculate Gross Pay Total Hours X Hourly Wage 36 hours X $9.00/hr = $324.00 Calculate DEDUCTIONS: Federal Income Tax (Use Chart) Earnings of $324/Single/No Exemptions Fed Tax Chart = $33 NJ (state) Income Tax 1.4% (from table) $324.00 X (.014) =$4.536 SS Tax 7.65% of Gross Pay $324.00 X (.0765)=$24.786

Calculating Net Pay Total Deductions: Add up ALL deductions Fed Tax - $33 State Tax $4.536 Social Security - $24.786 Total Deductions – 33 + 4.536 + 24.786 = $62.322 Calculate Net Pay  Gross Pay - Total Deductions $324.00 - $62.322 = $261.678

Work alone on “Calculating Net Pay” handouts

W-4 Forms Why? Employee’s Withholding Allowance Certificate Filled out when you start a job Why? It gives your employer the information needed to determine how much tax to withhold from your paycheck. http://www.irs.gov/individuals/employees/article/0,,id=130504,00.html