Economics and Personal Finance/Income Earning and Reporting

Income

Earned Income

Salary
Hourly wages
Overtime
Tips
Commissions
Bonuses

Unearned Income

Interest
Return on investment
Inheritance gifts

Gross Income

Total amount paid before any deductions.

Net Income

Your "takehome pay" after deductions.

Jobs

Salaried Jobs

Paid by the year
Consistent paycheck amounts
Better benefits
May work longer hours with no overtime
May struggle to separate work from personal life.

Hourly Jobs

If you get sick, no work = no pay.
Paid by the hour
Opportunity for overtime pay
Easier to separate home and work
If the company is struggling, it may cut shifts.

Human Capital

Human Capital: Knowledge and skills a person possesses

You improve your human capital when you gain knowledge and skills through education, training, and experience.
People with more education and skills tend to earn higher incomes than uneducated and unskilled workers.

Employee Benefits

Savings plan
Parking
40K/403B
Health/Dental insurance
Child/Eldercare
Paid vacation/sick days
Company cars

Overtime (OT)

An overtime is an increase in salary if you work more than 40 hours a week. Equals "time and a half". You can multiply your wages by "1.5".

Paycheck Deductions

Optional
Required

Optional

Health/Life/Disability/Dental/Vision Insurance
Savings/Retirement/Spending/Stock purchase plan
Health Flexible

Required

FICA and Income taxes

FICA

FICA stands for the Federal Insurance Contributions Act. It is a mandatory payroll deduction (take directly out of your paycheck). These taxes pay older Americans their SS retirement and Medicare benefits.

Social Security Tax

While you work, you pay SS taxes, which goes into a fund that pays benefits to those who are currently retired, disabled, or is the surviving spouse/child of workers who died. You will be taxed 6.2% of your gross income.

Medicare

While you work, you pay Medicare taxes which pays for health insurance for those over 65 years old. You will be taxed 1.45% of your gross income. TOTAL: 7.65%.

Income Taxes

Federal and/or state taxes.
Federal taxes collected by the IRS: Internal Revenue Service.
Progressive/gradual: The more money you make, the higher your tax rate.

"Pay-as-you-earn" taxes collected throughout the year, taken out of each paycheck. Taxes are "withheld", meaning that your employers take tax payments out of your pay before you receive it.

The amount of money taken out of your paycheck is determined by what information you entered in your W-4 form when you started your job.

Tax returns

Tax returns are due April 15 of each year. If you paid too much throughout the year, you will get a refund. If you paid too little throughout the year, you will have to pay additional taxes.

W-4 Form

The W-4 Form is the employee's withholding allowance. You fill out the certificate form when you start a new job. The information on this form tells your employer how much federal income taxes should be withheld (taken out from your paycheck).

Line 5

Line 5 is where you put in the number of allowances/exemptions. This number determines your take-home pay.

Exemptions

There are two types of exemptions:

Personal exemptions for the taxpayer and spouse
Dependency exemptions for dependents (children)

So if you are not married nor having kids, you will either claim a 1 or a 0. You'd put a 1 or a 0 based on how much money you make.

The more exemptions/allowances you claim, the less taxes will be taken out and the more money you will have in your take-home pay. But you may have to pay more taxes when you file your tax returns.

The less exemptions/allowances you claim, the more taxes will be taken out and the less money you will have in your take-home pay. You may get a refund when you file your tax returns, though.

Other Forms

Employment Eligibility Verification Form: Proves you're not an illegal alien.
Passport, voter's registration, school or military ID, driver's license, social security card: Proves you are a citizen.
W-2 Form: Provided by your employer. Reports the taxable income you received and required to prepare your income tax return. By January 31st, your employers are required to give you your W-2 Form that shows how much they withheld in taxes.
1040EZ: Federal tax return form for filers with no dependents (children).

Types of Taxes

Progressive Tax

Tax rate increases the more income you make.

Argument For - The wealthy can afford a higher tax and should pay more of the tax burden.
Argument Against - Why should the hardest working and most successful pay more taxes? Wealthy are penalized for their success.

Flat Tax

Everyone pays the same tax rate

Argument For - Tax levied on what is bought. If you cannot afford the tax, do not buy the items.
Argument Against - Tax harms those who can least afford it.

Consumption Tax

Tax on what you spend (sales tax, excise tax: taxes on specific goods like gas, licenses).

Capital Gains Tax

Taxes on investment (stock dividends).

Property Tax

Paid on homes, land, or commercial real estate.

Inheritance/estate Tax

Paid by the heir.

Fair tax

Gets rid of income/gift/estate/capital gains/social security/medicare, etc. and replaces it with a 23% sales tax.