Let’s calculate some paychecks!
1. Math: Reminder:
Gross pay is calculated by multiplying
regular hours times regular pay and adding any overtime
hours multiplied by overtime pay.
Do you remember HOW OVERTIME PAY IS CALCULATED??
Net pay is determined by subtracting any deductions
from gross pay
--------------------------------------------------------------------------------------------------------
EXAMPLE:
 You worked 45 hours last week and pay is $10/hr.
What is your gross pay?
Deductions: 10% federal income tax,
6.2% social security, 1.45% Medicare
What is your NET PAY?
40 x $10 = $400 regular pay
5 x $15 = $75 overtime pay (1 ½ x regular pay)
Gross Pay = $475
$475 x 10% = $47.50 federal income tax
$475 x 6.2% = $29.45 social security
$475 x 1.45% = $6.89 medicare
Totals Deductions = 47.50 + 29.45 + 6.89 = $83.84
$475 – 83.84 = $391.16 net pay (a.k.a. take home pay)
See Page 74 in your book:
Making Academic Connections:
Complete a.- d. with a partner
Answers to Page 74, Math
a.Gross Pay = $368
b.Gross Pay = $478.40
c.Net pay = $304.47
d.Net pay = $307.58
Opener
Get signed on to computer
Go to IRS.gov
Who Must File? Handout #
IRS Website: Forms and Publications Tab
Search 1040EZ Instructions- See Page 7
Also see pages 30-38 for tax tables – how
much will you owe?
Double the Salary
An employee starting a new job has the option to choose how he is
paid for the first twenty days of work. He works five days a week,
for four full weeks. Make the best choice for the new employee after
comparing the two options.
Payment Option 1:
For the first twenty days of
work, the new employee will
be paid $500 a day.
Payment Option 2:
The pay will be $0.01 for the first day.
Each day the pay will double. So, it will
be $0.02 the second day, $0.04 the third
day, $0.08 the fourth day, etc. By the
end of twenty days, how much money
will the employee have made?
Double the Salary
Payment Option 1:
$500.00 a day * 20 days = $10,000
Payment Option 2:
Day 1
$ 0.01
Day 11
10.24
Day 2
.02
Day 12
20.48
Day 3
.04
Day 13
40.96
Day 4
.08
Day 14
81.92
Day 5
.16
Day 15
163.84
Day 6
.32
Day 16
327.68
Day 7
.64
Day 17
655.36
Day 8
1.28
Day 18
1310.72
Day 9
2.56
Day 19
2621.44
Day 10
5.12
Day 20
5242.88
Total:
$10,485.75
Solution
Payment Option 1:
$500.00 a day * 20 days = $10,000.00
Payment Option 2:
This is a better choice for the new employee as
he will be making $10,485.75
This is $485.75 more than if he would have
chosen Payment Option 1
Chapter 2
Income, Benefits, and Taxes
Chapter 2 Objectives
• List and discuss types of earned income and
unearned income
• Discuss types of self employment,
advantages and disadvantages
• Describe the types of taxes we pay and the
benefits of paying taxes
• Read a paycheck, noting required and
optional deductions from gross pay
• Discuss common federal tax forms
Slide 9
What Are the Sources of
Earned Income?
• A wage is pay for each hour worked.
o Minimum wage – lowest rate by state law
o Overtime – 1½ times regular rate
• A salary is pay for each month or year
worked (no timecards used)
• A tip is a gift of money for a service.
• A commission is a set fee or percentage
of a sale paid to the salesperson.
2-1 Earned Income and Benefits
Slide 10
What Is Self-Employment?
• Self-employment is working for yourself.
• An entrepreneur is someone who is selfemployed and owns a business.
Lifestyle businesses
o hobby, intends to keep
it small, local, work it
themselves
Venture businesses –
ointends to grow into
corporation and expand
2-1 Earned Income and Benefits
Slide 11
Self- Employment
Small Business
Advantages
• ability to make decisions
about running business
• can set your own hours
• can keep all the Profits:
(Profits are the amount left
after all expenses are
deducted from the
revenues or sales of the
business).
•
•
•
•
•
Disadvantages
If business fails, invested
money is lost
must take risks (risky)
hard to get credit
initial startup requires
long hours and a lot of
work
money is tight at first
What Are Employee Benefits?
Benefits are forms of pay other than
salary or wages.
• Pay without work- vacations, holidays, sick leave
• Education-tuition reimbursement
• Perks-parking spot, office with view, car, coffee station
• Insurance-health, dental, worker’s comp
• Retirement plans
• Profit-sharing plans
• Stock option plans
2-1 Earned Income and Benefits
Slide 13
Unearned vs.
earned income
• Earned
• Wage/Hourly (minimum
wage and overtime)
• Salary (no time cards or
counting hours)
• Tips
• Commission (earned
on amount of sale)
• Unearned
•
•
•
•
Interest
Dividends (cash and stock)
Pension (retirement income)
Government Transfer Payments:
(EX: social security benefits,
unemployment benefits, workers’
compensation)
Slide 14
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 15
What Types of Taxes Do You Pay?
 CONSUMPTION TAXES
 Use taxes – paid when
is a Progressive tax –
using certain good and
the more you earn the
services provided by
more you pay in tax
government. Ex: toll road
(tax brackets)
 Excise taxes – charged on
the purchase of specific
Property Tax
goods. Ex: phone, utilities
paid by those who
 Sales taxes – added to
own real estate.
purchase price of goods
Income Tax:
How Do You Benefit from
Paying Taxes?
• Direct benefits
o Examples: roads and highways, social
security, police protection, national parks
• Indirect benefits
o Examples: security
from armed forces,
public education for
citizens, free vaccines
2-2 Unearned Income and Benefits
Slide 17
Public Goods are paid for
by your taxes
• Three unique qualities of public goods:
– We all benefit (they raise the overall
standard of living in our country)
– No one can be excluded from the benefits
– People don’t necessarily benefit in
proportion to taxes paid
Slide 18
Opener: Calculate and reflect the following:
1. Figure out weekly and yearly earned income if working a job at minimum
wage ($7.25/hr.) for 40 hours a week for 1 year.
W=
Y=
2. Next figure out your weekly and yearly income if working a job at
$12.00/hr for 40 hours a week for a year.
W=
Y=
3. Now calculate the weekly and yearly income for a job with median starting
pay for a Bachelor’s degree ($24/hr) for 40 hours a week for a year.
W=
Y=
Sum up your thoughts about these results
Communication Skills –
see pg. 53
Critical Listening
• Evaluate the
information you hear.
• Consider only
important or relevant
information.
• Make good decisions *Remember the example
based on what is
of the used car salesman
accurate and useful.
2-2 Unearned Income and Benefits
Slide 20
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 21
Methods for Paying Employees
1.
2.
3.
Paycheck
• Paper check with stub
• Least secure payment method because the employee is
responsible for handling the paycheck
Direct Deposit
• Employers directly deposit employee’s paycheck into the
authorized employee’s bank account
Payroll Card
• A payroll card electronically carries the balance of the
employee’s net pay
Where Does My Money
Go?
• Imagine you have just started your
first job! After the first week, you
have earned $100. About how much
money would you receive in your first
paycheck??
–
–
–
–
A) $100
B) $84
C) $69
D) $55
Where Does My Money Go?
• Up to 31% of an individual’s paycheck
is deducted. Your net paycheck many only
be about $69!
• How do you get from $100 all the way
down to $69?
• Let’s take a look…
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, life insurance, savings plan
• Gross pay is total salary or wages.
• Net pay is gross pay minus deductions.
2-3 Taxes and Other Deductions
Slide 25
What is the Gross Pay?
If Miss Patty Paycheck worked at Terrific Tacos for
$6.00/hour for 15 hours a week what will her gross pay be?
# hours worked x wage = gross pay
15 hours x $6.00/hr = $90.00/week
What is Miss Patty Paycheck’s gross pay
for a two week pay period?
30 hours x $6.00/hr = $180.00 for 2 weeks
Miss Patty Paycheck’s
Paycheck
• Miss Patty Paycheck’s paycheck includes:
– Gross Pay $180.00
– Payroll Withholdings:
• Federal Withholding Tax $14.10
• State Withholding Tax $5.45
• FICA $13.77
• What is her Net Pay?
• Gross Pay – Payroll Withholdings = Net Pay
$180.00 – ($14.10 + $5.45 + $13.77) = $146.68
Federal Withholding Tax
On-The-Go
Employee
SSN
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Federal Withholding Tax
– The amount required by law for employers to withhold from earned wages
to pay taxes (Tax Brackets based on income: 10%, 15%, 25%, 28%, 33%, 35%)
– The amount of money deducted depends on the amount earned and information provided on the
Form W-4 (In this case under 10% was deducted)
– Largest deduction withheld from an employee’s gross income
State Withholding Tax
On-The-Go
Employee
SSN
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
State Withholding Tax (Approx. 3% in this case)
– The percentage deducted from an individual’s paycheck to assist in funding
government agencies within the state
– The percentage deducted depends on the amount of gross pay earned
FICA
(Federal Insurance Contribution Act)
On-The-Go
Employee
SSN
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
FICA
– This tax includes two separate taxes: Fed OASDI/EE or Social Security and Fed
MED/EE or Medicare
– These two taxes can be combined as one line item or itemized separately on a paycheck
stub
Social Security
On-The-Go
Employee
SSN
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Social Security
– Nation’s retirement program, helps provide retirement income for elderly and pays
disability benefits
– Based upon a percentage (6.2%) of gross income, employer matches the contribution
made by the employee
Medicare
On-The-Go
Employee
SSN
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Medicare
– Nation’s health care program for the elderly and disabled, provides hospital
and medical insurance to those who qualify
– Based upon a percentage (1.45%) of gross income
Tax Forms – see pages 66-68
• W-2 – reports a worker’s
taxable income for the
year
• 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- – reports interest earned and selfemployment income (Ex: Landscaper, PT)
2-3 Taxes and Other Deductions
Slide 33
E-Filing – see page 66, 67
• 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 34