1. Understanding Income and Taxes
Chapter 23
Understanding
Income and Taxes

2. 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.

3. 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

4. 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

5. 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

6. 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?
$ $ $ $ $5.15
Minimum Wage By State

7. 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

8. 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 hours
$160.00

9. 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 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 hours
$190.00

10. 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.

11. 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

12. 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

13. 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

14. 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 $$$$$

15. 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????

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

17. 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????

18. 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

19. 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.

20. 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

21. 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

23. 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)

25. 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?

26. 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.

27. 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

28. 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

29. 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

30. 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

31. 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.

32. 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

33. 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)
$ X (.014) =$4.536
SS Tax 7.65% of Gross Pay
$ X (.0765)=$24.786

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

35. Work alone on “Calculating Net Pay” handouts

36. 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.