Economics and Personal Finance/Income Earning and Reporting
Income[edit | edit source]
- Earned Income
- Hourly wages
- Unearned Income
- Return on investment
- Inheritance gifts
- Gross Income
Total amount paid before any deductions.
- Net Income
Your "takehome pay" after deductions.
Jobs[edit | edit source]
- 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[edit | edit source]
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[edit | edit source]
- Savings plan
- Health/Dental insurance
- Paid vacation/sick days
- Company cars
Overtime (OT)[edit | edit source]
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[edit | edit source]
- Health/Life/Disability/Dental/Vision Insurance
- Savings/Retirement/Spending/Stock purchase plan
- Health Flexible
- FICA and Income taxes
FICA[edit | edit source]
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[edit | edit source]
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[edit | edit source]
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[edit | edit source]
- 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[edit | edit source]
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[edit | edit source]
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[edit | edit source]
Line 5 is where you put in the number of allowances/exemptions. This number determines your take-home pay.
Exemptions[edit | edit source]
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[edit | edit source]
- 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[edit | edit source]
- 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.