1. Unit 1: Income 1. Identify components and sources of income.
2. Analyze how career choice, education, skills, and economic conditions affect income and goal attainment.
3. Relate taxes, government transfer payments, and employee benefits to disposable income.
Unit 1: Income

2. Careers

3. PLANNING YOUR CAREER Job – work that you do mainly to earn money
Career – commitment to work in a field that you find interesting and fulfilling
Must fulfill personal goals
Must also fulfill financial goals

4. Career Decisions Will affect: Career should reflect: Money you make
People you meet
Spare time you have
Career should reflect:
Interests, values, goals (money and personal fulfillment)

5. Career Decisions
Standard of Living – a measure of quality of life based on amounts and kinds of goods and services that you enjoy
A career will involve opportunity costs
Time vs Money

6. Career Decisions
Potential Earning Power - Amount of money you may earn over time
Education
Field of Study
Working well with others
Creative
Communication skills

7. Personal Factors Aptitudes – natural abilities that people possess
Interest Inventories – tests that help you identify the activities you enjoy the most.
Your personality

8. Stages of Career Planning
Assess personal goals, abilities and interests - research careers
Identify job opportunities in chosen field
Develop resume and cover letter—apply
Interview for positions—improve skills
Consider job offers-accept a job
Plan and implement a program for career development

9. Social Influences
Demographic trends – tendencies of people that are grouped by age, gender, ethnicity, education or income
Geographic trends – cost of living vs salaries earned in big cities or smaller towns

10. Economic Factors Interest rates Price increases
Demand for certain goods and services

11. Trends in Industry and Technology
Manufacturing industry:
Increased competition by other countries
Automation in the factories
Service industry:
Provide service for a fee
Fastest growing area in our economy

12. Income and Taxes “Taxes are what we pay for civilized society.”
- Oliver Wendell Holmes, Jr., 1904

13. Why are taxes so important?

14. Why are taxes so important?
Fund public goods and services
Medicare and Medicaid
National Defense / Military
Police & fire protection
Public schools and libraries
Road Maintenance
Parks and recreation
Health and food inspections for our safety

15. Effective Tax Planning
Helps you have more money left over after paying taxes and living expenses
Research how current laws and regulations affect you
Maintain complete and accurate tax records
Minimize your tax liability
Tax Liability: total amount of taxes owed

16. Types of Taxes Taxes on Purchases Taxes on Property
Sales tax: everyday consumer products
Excise tax: collected on specific goods and services (gasoline, air travel, telephone service)
Taxes on Property
Real estate tax: based on value of land and buildings – primary source of income for local governments
Personal property tax: based on the value of items such as cars and boats

17. Types of Taxes (cont.) Taxes on Wealth
Estate tax: federal tax collected on the value of a person’s property at the time of his death
Inheritance tax: state tax collected on the value of the property left by a person to his heirs in a will
Gift tax: collected on any money or property valued at over $14,000 given from one person to another in one year

18. Types of Taxes (cont.) Taxes on Earnings (Income Taxes)
Federal Income Tax: paid to federal government on any earned income (wages, salaries, commissions, tips, bonuses), interest income, dividend income, or capital gains
Largest amount of taxes paid by an individual
Collected by the Internal Revenue Service (IRS)
Federal agency that collects income taxes and enforces nation’s tax laws
“pay as you earn” basis – taxes taken out of your paycheck by your employer and sent to IRS each pay period

19. Types of Taxes (cont.) Income Taxes (continued)
State Income Tax: paid to the individual state (laws governing what is taxed differ from state to state)
City Income Tax: collected by about 2000 cities
Social Security Tax: pays for retirement, disability and survivor benefits
Also called FICA – Federal Insurance Contributions Act
Medicare Tax: health insurance program for people 65 and older

20. Types of Income (cont’d)
Gross Pay: total amount of money an employee earns in a pay period
Net Pay: the amount of money an employee actually receives in a pay period after deductions
Gross Income: includes earned income, interest income, and dividend income minus tax-exempt income

21. Income Types (cont’d)
Adjusted Gross Income: gross income after adjustments (reductions such as student loan interest or contribution to 401K) used for tax calculations
Taxable Income: adjusted gross income less any tax deductions and exemptions and used to determine income tax
Tax-exempt income: income not subject to taxes (municipal bonds)
Tax-deferred income: income taxed at a later date (401k contributions)

22. So…What has to come out of your paycheck??
Average person pays over 30% of paycheck to taxes
Employers required by Federal Law to deduct:
Social security (FICA)
Medicare tax
Federal income tax
State and/or city tax (where required)

23. Taxes & Starting a New Job
To receive a paycheck, an employee must complete:
W-4 Form (Employee’s Withholding Allowance Certificate)
Determines percentage of gross pay withheld for taxes
I-9 Form (Employment Eligibility Verification)
Confirms citizenship status

24. W-4 Form
Employer uses to withhold (deduct) money to send to the Internal Revenue Service
Amount withheld is based on number of allowances
Allowance: adjustment to the tax withheld from paycheck based marital status and number of dependents
A person may claim a personal allowance if no one else claims the person as a dependent
Dependent: a person who relies on the taxpayer for financial support
Reduces amount of income taxes an employer withholds and sends to IRS
Puts more money in your pocket now but may mean you owe taxes when filing tax return

25. Completing a W-4 Form Legal Name and address Social Security number
Marital status
Number of Allowances (yourself, spouse, dependents)
Any additional money you want withheld
If you are exempt from income tax
Sign and date form

26. I-9 Form
Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United States
Must provide documentation which establishes identity and employment eligibility
driver’s license, passport, Social Security card, or birth certificate

27. Reading a Paycheck Stub
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
A document included with paycheck each pay period which outlines paycheck deductions

28. Reading a Paycheck– Personal Information
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
States the employee’s full name, address, and Social Security or Employee Identification number
Always check to ensure this information is correct

29. Reading a Paycheck – Pay Period
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Length of time for which an employee’s wages are calculated; most are weekly, bi-weekly, twice a month, or monthly
Last day of the pay period is not always payday to allow a business to accurately compute wages

30. Reading a Paycheck – Gross Pay
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Total amount of money earned during a pay period before deductions
Calculated by multiplying number of hours worked by hourly rate
If employee is on salary - total salary amount divided by the specified number of pay periods

31. Reading a Paycheck – Net Pay
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Amount of money left after all deductions have been withheld from the gross pay earned in the pay period.

32. Reading a Paycheck – Deductions
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Amount of money subtracted from the gross pay for mandatory taxes, employee-sponsored medical benefits, and/or retirement benefits

33. Reading a Paycheck– Federal Withholding Tax
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Amount required by law for employers to withhold from earned wages to pay taxes
Amount of money deducted depends on amount earned and information provided on Form W-4
Largest deduction withheld from an employee’s gross income

34. Reading a Paycheck– State Withholding Tax
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Percentage deducted from an individual’s paycheck to assist in funding government agencies within the state
Amount deducted depends on amount of gross pay earned

35. Reading a Paycheck – FICA
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Federal Insurance Contribution Act
Includes two separate taxes: Social Security and Medicare
These two taxes can be combined as one line item or itemized separately on a paycheck stub

36. Reading a Paycheck – Year to Date
On-The-Go
Employee Beakens, Joe
Employee Identification
Check # 164
Check Amount $1,102.98
Employee Address 293 Michael Grove Billings, MT
Pay Type- Gross Pay
Deductions
Current
Year-to-date
 $1,353.33
Federal Withholding State Withholding Fed OASDI/EE or Social Security
Fed MED/EE or Medicare Medical 401K
$ $40.82 $83.91 $19.62 $0.00 $0.00
$ $ $ $ $0.00 $0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Total of all of the deductions which have been withheld from an employees paycheck from January 1 to the last day of the pay period indicated on the paycheck stub.

37. Taxes Paid by Employer
Employers must pay social security and Medicare taxes equal to the amount the employee pays
Self-employed individuals pay taxes at a higher rate

38. Tax Evasion vs Tax Avoidance
Tax Evasion: Failure to pay legally due taxes
Tax Avoidance: Legal means of decreasing your tax bill

39. Tax Avoidance
Tax Deduction: expense that can be subtracted from adjusted gross income to reduce taxable income
Standard deduction (changes every year)
Itemized deductions
Medical or dental expenses (7.5% AGI)
Interest on mortgages
Real estate taxes paid
Charitable contributions
Unreimbursed employment expenses
Exemption: deduction for a dependent or someone that you support financially (spouse or child)

40. Preparing an Income Tax Return
Income Tax Return: form on which a taxpayer reports how much money he/she has received from working and other sources and the exact taxes owed
US citizens required to file (voluntary compliance)
Deadlines and Penalties
April 15
Extension to October 15
Standard Tax Forms
1040EZ
1040A
1040

41. W-2 Form Employer sends each employee and the IRS a W-2 Form
Annual earnings
Amount withheld
Federal income taxes
Social Security
State and/or local income taxes
Must be sent to employees by January 31 each year

42. Taxpayer Rights Information on taxpayer’s return is private
Taxpayers have the right to appeal an IRS decision
“The income tax law is a lot of bunk. The government can’t collect legal taxes from illegal money.”
- Al Capone

43. Filing a 1040EZ Return Taxable income less than $100,000
Single or married
Under age 65
No dependents
Wages, tips, salaries
No itemized deductions
Can be filed by mail or electronically

44. Tax Assistance IRS Web Site (www.irs.gov) Software (Quicken, TurboTax)
Professionals (H & R Block)
Books