Making Money
The amount of money that an individual,
family, or business receives over a specific
time period is called income . Income is also
money you earn from working or investing
or the money you receive from others.
Employment is the principal source of
income for most people. Salaries can often
reflect the value society places on a given
service or skill. Higher paying occupations
often attract greater interest than those that
pay less.
Not all people get their incomes from being
employed. Many older people receive
retirement income. Retirement income
comes from savings, a pension and/or Social
Security. A pension is a long-term savings
account to which employees and their
employers both contribute toward the goal
of retirement.
What are the various factors that influence
what a job pays? Look at a cashier in a
discount store and a doctor. The cashier
receives $8.25 per hour and a doctor
receives $85.00 per hour. They both
perform a needed service. Why does the
doctor earn more?
Education plays an important role in job
choice. Higher education (anything beyond
high school level) offers people the
opportunity to learn certain abilities or
skills. However, obtaining a college or
advance degree requires certain sacrifices.
As the cost of higher education rises, more
and more people work while they go to
school. They may also take out loans from a
bank that they will have to pay back after
completing the degree. The trade-off for
pursuing a college or graduate degree is the
ability to take advantage of greater job
opportunities, often at a higher salary (as in
the case of a doctor versus the cashier).
Income is related to the educational level
you have:
Listed below are 2009 figures:
Earnings (monthly average by educational leve l,
and training category Summer 2009).
High school diploma
Associate’s degree
Bachelor’s degree
Master’s degree
Doctorate degree
Professional degree
$ 2,850.00
$ 3,200.00
$ 4,250.00
$ 5,300.00
$ 6,750.00
$ 6,600.00
Source: Bureau of Labor Statistics
Education is not the sole factor in
determining salary levels. Occupations
where a particular skill is in high demand
may command a higher salary than others
with a similar education and skill
requirements. List some jobs that are in
high demand:
?
?
?
?
List some potential sources of income for you:
1.
4.
2.
5.
3.
6.
Potential sources: wages, salaries & commissions,
self-employment income, savings & investments
income (interest, dividend, rent), gifts, grants,
scholarships, and educational loans, payments from
government for social security, public assistance, and
unemployment benefits, amounts received from
pension and retirement programs, and alimony and
child support payments.
Monthly salary, also known as gross
income, is your total salary without taxes
taken out. Take-home pay is net pay or net
income – the earnings you receive after
deductions for taxes and other items. Takehome pay is also known as disposable
income – the amount a person or household
has available to spend. Discretionary
income is money left over after paying for
housing, food, and other necessities.
Taxable income is the net amount of
income, after allowable deductions, on
which income tax is computed.
Taxes
A tax is a fee placed on income, property, or
goods for the support of local, state, or
federal government programs. Most people
pay taxes on four major categories: taxes on
purchases, taxes on property, taxes on
wealth, and taxes on income.
Taxes on Earnings are based on wages or
salary. Social Security and federal and state
income taxes are the three major taxes
individuals pay. Federal income tax figures
are used to figure state and local income tax.
There are nine states that currently do not
have state income taxes.
Taxes on Purchases comes when you pay
sales tax on items you purchase. Sales tax
may be collected by the state, the county or
the city. They are added to the purchase
price of the products. Some states exempt
food and drugs from sales tax. An excise
tax is imposed on specific goods and
services, such as gasoline, cigarettes, and
alcoholic beverages.
Taxes on Property (real estate property) is
the major revenue source for local
governments. The tax is based on the value
of the land and buildings. Some states may
assess taxes on the value of the automobiles,
boats, furniture, and farm equipment.
Taxes on Wealth may happen when you
inherit an estate. An estate tax is imposed
on the value of an individual’s property at
the time of his or her death and is paid by
the deceased’s estate. An inheritance tax is
levied on the value of the property received
from a deceased individual. The person
receiving the property pays the tax.
How is the Payroll Deduction Figured?
Payroll deductions are amounts subtracted
from gross income to arrive at net income,
or take-home pay. Generally, there are three
primary payroll deductions: federal income
tax, state income tax, and Social Security
tax. The Social Security tax rate (FICA) is
7.65% (6.2% for Social Security and 1.45%
for Medicare) for salaried workers.
The Federal Income tax rate is determined
by the amount of income you have.
Income Tax Rates for 2009
If taxable income
is over
But not over
$0
$8,350
$8,350
$33,950
$33,950
$82,250
$82,250
$171,550
$171,550
$372,950
Over $372,950
Then regular income
tax equals
10% of taxable
income over $0
$835.50, plus 15% of
the amount over
$8,350
$4,675, plus 25% of
the amount over
$33,950
$16,750, plus 28% of
the amount over
$82,250
$41,754, plus 33% of
the amount over
$172,550
$108,216, plus 35% of
the amount over
$372,950
The State Income tax rate in Illinois is 3.0%.
These percentages are multiplied by the gross
income received.
The tax obligation includes federal income
tax, state income tax and Social Security tax
rate (FICA).
If a person’s wages are $20,000, his/her tax
obligation would be:
Federal: $835 + .15 of $11,650 (the
amount over $8,350) $1747.50 = $ 2,582
State: $20,000 x .03 =
$ 600
FICA: $20,000 x .0765 =
$ 1,530
Tax Obligation
$ 3,182
If the person’s wages are $70,000, his/her tax
obligation would be:
Federal: $4,675 + .25 of $36,050 (the
amount over $33,950) $9,012 = $13,687
State: $70,000 x .03 =
$ 2,100
FICA: $70,000 x .0765 =
$ 5,355
Tax Obligation =
$21,142
Using the monthly salaries for the
educational level as given earlier, here’s
what the take- home pay or net income plus
taxes will be.
High school diploma
Taxes =
Take-home =
$2,850.00
- $408,65
$2,441.35
Associate’s Degree
Taxes =
Take-home =
$3,200.00
- $804.65
$2,395.35
Bachelor ’s Degree
Taxes =
Take-home =
$4,250.00
- $1,092.60
$3,157.40
References:
Your Money and Your Life, University of
Illinois Extension. 2005.
New Tax Withholding Tables, Internal
Revenue Service. 2009. www.irs.gov
http://www.maxi-pedia.com/tax +
(rates+ 2009+ schedule=table)
All My Money, University of Illinois
Extension. 2005.
Prepared by: Susan Taylor, Extension
Educator, Consumer and Family Economics,
University of Illinois Extension. 1996.
Revised by: Evelyn Prasse, Extension
Educator, Consumer and Family Economics,
University of Illinois Extension. 2010.
WHERE DOES MY MONEY COME FROM?
Date ______________________
(Could be done by week or month)
Income
Amount Planned
Amount Received
Job
$
$
Allowance
$
$
Gifts
$
$
Special jobs (babysitting, mowing)
$
$
Other
$
$
Other
$
$
Totals
$
$
05-B5-2010
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