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INCOME AND WAGES • Income is the payment people receive for providing resources in the market • People provide human resources (labor) When people work, they receive income in the form of wages. Wages can be hourly or in the form of a salary.
PAY STUBS • Gross Pay is the amount people earn per pay period before any deductions or taxes are paid. • Net Pay is the amount people receive after taxes and other deductions are taken out. “Take-Home Pay”
CALCULATION TIME! • John makes $7/hour working at Publix. He worked 17 hours this week. How much did he make? • $119 • Is this his GROSS pay or NET pay? • GROSS
DEDUCTIONS • Taxes are government fees placed on businesses and individuals. • Insurance premiums may be withheld from a paycheck. • Contributions to investments such as retirement plans may also be withheld. • 401K • 403B
TAXES • Income tax is a tax on the amount of income people earn. • Some states have a state income tax in addition to federal income taxes. • FICA: (Federal Insurance Contributions Act) is another tax that most workers are required to pay. It funds Social Security and Medicare. Employees pay part, Employers pay part.
…more TAXES… • Payroll Taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff. • Social Security Tax is part of FICA that provides benefits for retirees, the disabled, and some children. • Medicare Tax is part of FICA that provides hospital insurance benefits.
…still more TAXES… • Self-Employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.
TAX FORMS: W-4 • AW-4 must be completed once you are hired for a job. It is required by the IRS. • The W-4 allows employers to determine what amount of income tax they should deduct from your paycheck based on your situation: single, married, etc. • As a student, it’s unlikely that you are exempt from any withholdings.
TAX FORMS: W-2 • W-2 is a summary of a person’s earning and tax withholding for an entire year. • All workers receive a W-2 from their employer around the end of January. • W-2 forms are required to complete your annual tax return before April 15 • W-2 forms must be submitted to the IRS with your tax return
TAX FORMS: 1040 EZ • The 1040EZ form is used to report income and taxes paid on your tax return. • The 1040EZ form is the simplest form used and is often used by teenagers and students. • If you paid more taxes than necessary, you will receive a tax refund. If you did not pay enough taxes, you will owe additional taxes.
SIMULATION TIME! • Go to http://apps.irs.gov/app/understandingTaxes/student/simulations.jsp • Complete “Lawrence Red Owl” (#1) • Complete “Cicely King” (#2)