Transcript Personal Financial Literacy

Chapter 2
Income, Benefits, and Taxes
What Are the Sources of
Earned Income?
• A wage is pay for each hour worked.
o Minimum wage – lowest rate by law
o Overtime – 1½ times regular rate
• A salary is pay for each month or
year worked.
• A tip is a gift of money for a service.
• A commission is a set fee or
percentage of a sale.
2-1 Earned Income and Benefits
Slide 2
Minimum Wage Laws
2-1 Earned Income and Benefits
Slide 3
What Is Self-Employment?
• Self-employment is working for yourself.
• An entrepreneur is someone who is selfemployed and owns a business.
o Lifestyle
businesses
o Venture
businesses
2-1 Earned Income and Benefits
Slide 4
Owning A Business
Advantages
• Make all the
decisions
• Work on your own
schedule
• Reap all the
rewards and profits
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Disadvantages
Carry all the risks
Hard to get up and
running
Huge commitment
Work long hours
and can often not
afford to hire help
Types of Small Business
• Lifestyle Business: owner(s) intend to
keep the business small.
• Venture Business: Want their business
to grow into a large company with
unlimited growth and many workers.
How Do I Get Started?
• If your parents own a business, you are
much more likely to start a business.
• A good place to start is talking with the
advisors at a Small Business
Development Center (SBDC)
What Are Employee Benefits?
Benefits are forms of pay other than
salary or wages.
• Pay without work
• Refers to times
when an employee
who is not work will be paid.
• Sick Leave
• Personal Leave
2-1 Earned Income and Benefits
Slide 8
What Are Employee Benefits?
• Education: Plans that will pay for, share the cost of, reimburse
money spent on education
• Perks: Parking space, expense accounts, office with a view,
etc.
• Insurance/HSAs: Important benefit for many workers
• Price paid for health insurance is called a premium.
• Group Life: Life insurance for the employees
• Disability: Provides payments to replace income lost
when illness or injury prevents the employee from
working.
• Workers Compensation: pays for medical and disability
benefits to workers who are injured or contract diseases
on the job.
2-1 Earned Income and Benefits
Slide 9
What Are Employee Benefits?
• Retirement plans: an account into which employees contribute
portion of their earnings into retirement.
• 401(k)
• Profit-sharing plans: Allows employees to share profits of the
business
• Bonus
• Stock option plans: Allow employees to buy stock at a reduced
price.
•Health Spending Account (HSA): Allows employees to set aside
money (pretax) to pay for qualified medical expenses.
• Often used by employees with high deductible insurance
plans
2-1 Earned Income and Benefits
Slide 10
Success Skills
Teamwork
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Set clear goals and create a plan.
Define the duties of each team member.
Identify how success will be measured.
Identify problems the team may face.
Have regular meetings.
Build on the strengths of team members.
Recognize accomplishments.
2-1 Earned Income and Benefits
Slide 11
What Is Unearned Income?
Earned Income
Unearned Income
Variable Income
Salaries and wages
Interest
Business profits
Tips
Dividends
Rents
Commissions
Capital gains
Royalties
Bonuses
Gambling winnings
Farm Income
Professional fees
Alimony
Social security benefits
Pensions
Annuities
Unemployment
compensation
2-2 Unearned Income and Benefits
Slide 12
Unearned Income
• Money received from sources other than working in
a job
• Government Transfer Payments: Money and benefits
received from local, state, or federal governments.
– Social Security
– Medicare
• In-Cash Payments: money in the form of a check,
debit card, or other direct payment given to a person
needing assistance.
• In-Kind Payments: Made indirectly on a person’s
behalf or paid in a form other than money to those in
need.
– Food Stamps
– Rent Subsidies
What Type of Taxes Do
You Pay?
• Taxes are based on consumption,
income, and wealth.
• Direct taxes are paid directly to the
government.
o Examples: income and property taxes
• Indirect taxes are charged on goods or
services bought by the consumer.
o Examples: use, excise, and sales taxes
2-2 Unearned Income and Benefits
Slide 14
Taxes
• Use Taxes: paid by people who use
certain goods or services provided by
the government
– National Park tax
• Excise Tax: charged on the purchase of
specific goods, such as gasoline,
tobacco, and alcohol.
• Sales Tax: Added to the purchase price
of consumer goods and services
Taxes Based on Income
• Income Tax: to be paid on earned and
unearned income.
• Progressive Tax: The more you earn,
the more you pay in tax.
Taxes Based On Wealth
• Property Taxes: tax based on the
property’s assessed value.
• Business personal property tax: tax on
property other than real estate.
– Equipment
• Estate Tax: taxes against the estate of
a person who has died
• Gift tax: taxes on money given over
13,000 within a tax year.
How Do You Benefit from
Paying Taxes?
• Direct benefits
o Examples: social security, police, national
parks
• Indirect benefits
o Examples: public
education for
citizens, free
vaccines
2-2 Unearned Income and Benefits
Slide 18
Tax the Rich Cartoon
Slide 19
The Critque
Slide 20
Building Communications Skills
Critical Listening
• Evaluate the
information you hear.
• Consider only
important or relevant
information.
• Make good decisions
based on what is
accurate and useful.
2-2 Unearned Income and Benefits
Slide 21
Focus On . . .
Social Security Benefits
• Workers pay into the social security fund
through payroll deductions.
• A social security number is assigned to each
person.
• Employers match the payments.
• Upon retirement, workers receive a monthly
benefit check.
2-2 Unearned Income and Benefits
Slide 22
What Are Paycheck Deductions?
• A deduction is money withheld from a
paycheck.
o Required deduction examples: income tax,
social security tax, Medicare tax
o Optional deduction examples: health
insurance, savings plan
• Gross pay is total salary or wages.
• Net pay is gross pay minus deductions.
2-3 Taxes and Other Deductions
Slide 23
Deductions
• Exemption: person you claim on your tax
return as a dependent
– Dependent: person who depends on you for more
than half of his or her support.
• Social Security Tax: Withheld by
government, provides a system of old-age,
survivors, and disability insurance.
• Medicare Tax: withheld by government to
pay for medical care for people 65 and older.
What Tax Forms Must Be Filed?
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W-2 – reports a worker’s
taxable income for the year
W-4 – how much money to
withhold from your paycheck
for federal taxes
1040EZ – a tax return for filers
with no dependents or itemized
deductions
1040A – a tax return that allows more options for
income and deductions
1099-INT – reports interest earned
2-3 Taxes and Other Deductions
Slide 25
Form W-2
Slide 26
Form W-2
2-3 Taxes and Other Deductions
Slide 27
W-4 Form Explained
Slide 28
W-4 Form
Slide 29
W-4 Cont.
Slide 30
E-Filing
• It is a fast and safe way to file a tax
return.
• You can e-file yourself or hire an
authorized e-file provider.
• Those who meet adjusted gross income
requirements can e-file free.
• Refunds are often received much
quicker.
2-3 Taxes and Other Deductions
Slide 31
What Happens to Our Tax Dollars?
Slide 32
The Critique
Slide 33