Chapter 8
Income and Taxes
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Section 8.1
Examining Pay and Benefits
Objectives
•Distinguish between types of income
•Explain regulations affecting pay
•Give examples of benefits
•Describe employment classifications and their
effect on pay and benefits
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Types of Pay
•Salary – is a set amount of money earned by an
employee per year or other fixed length of time
•Wages – are employee earnings that are paid by
the hour, day, or item
•Piecework – work for which wages are based
on the number of items or pieces produced
•Commission – is a fixed percentage or amount of
profit given to an employee in exchange in addition
to regular pay
•Bonus – is a sum of money paid to an employee
in addition to regular pay
•Tip – is money given to an employee by
customers in exchange for a service
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Regulation Affecting Pay
Fair Labor Standard Act (FLSA) – federal
government developed standards governing
employee payment and compensation
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Equal Pay – forbids employers from paying one
person less than another person for the same work
•Discrimination against women, minorities, and
older workers
Minimum Wage – this is the lowest hourly rate an
employer may legally pay most workers
•This is raised periodically to help workers keep
up with inflation
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Subminimum Wage – is set lower than the
standard minimum wage
•Full-time students, employees who are younger
than 20, and employees who are
developmentally disabled
Overtime – employees that work in excess of 40
hours per week
•Most cases must be at least 1.5 time the
employee’s regular rate of pay
•Salaried employees are not paid overtime
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Types of Benefits
•Insurance
•Savings & Retirement
•Other
•Holidays
•Vacation
•Sick leave
•Job training
•Maternity leave
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Employment Classifications
Full-time – hold wages or salary jobs of at least
35 hours per week
Part-time – work fewer than 35 hours per week
Temporary – short-term assignments at various
companies
Contract – are hired for a specified period of time
to complete a particular project for an employer
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By Using Temporary or Contract Employees,
Employers Gain Several Advantages:
•Can easily increase or decrease staffing as their
needs change
•Cost may be less if benefits are not paid
•Avoid costly hiring and training procedures
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Chapter 8.2
Understanding Your Paycheck
Objectives
•Explain variations in how workers
receive pay
•Describe the information found on a
pay stub
•Identify paycheck deductions and their
purposes
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How Employees Are Paid
•Weekly
•Every two weeks
•Monthly
•Twice a month
Direct Deposit – pay is electronically
transferred directly into the recipient’s bank
account by completing and signing a form
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Earnings
•Number of hours (regular and overtime) –
very important to someone who gets hourly
pay
•Gross Pay – is the total amount of money
earned for working during a pay period.
Salary – usually does not change
Hourly – Multiply the number of hours
worked by the hourly rate
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Deductions – is anything that is subtracted from
gross pay
Types
•Tax Withholding
Federal, State, and Local Income Taxes.
Social Security, Medicare deductions (FICA –
Federal Insurance Contribution Act)
•Benefits
Medical, Dental, & Vision
•Other Deductions
Savings & Retirement Plan
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Totals and Net Pay
•Net Pay – is the amount of pay an employee
is left with after taxes and other deductions are
subtracted from the gross pay. (Take-homepay)
•Multiply the figures for gross and net pay by
the number of pay periods during the year
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Chapter 8.3
Paying Income Taxes
Objectives
•Identify responsibilities related to income
taxes
•Describe the purpose of various income tax
forms
•Explain the types of information included on a
tax return
•Discuss the benefits of tax planning
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Income Tax Responsibilities
– 2 main tasks
•Complete a form that allows your employer to
withhold income taxes from your pay
•File a tax return at least once a year, and pay
any additional tax owed
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Income Tax Withholding
•Form W-4 – Employee’s Withholding
Allowance Certificate
Personal Information
Name, address, social security
number, & single or married
Exempt Status
•Allowances – are factors that affect the
amount of income tax withholding
The more allowances you claim, the less tax
your employer will take out
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Getting Ready for Tax Time
•April 15th – “Income Tax Day” – deadline by
which most people need to file a tax return
•If you withhold more than you need to pay,
then you will receive a “Refund”
•If you have less withheld, then you will need
to pay the difference
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Internal Revenue Service (IRS) – government
agency in charge of collecting federal income tax
Do You Need to File?
•People Who Need Not to File a Tax Return
•Some incomes that falls below a certain
amount
•Self-employed, over the age of 65, single
adult, a child, or a married person with
children
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What Materials Do You need?
Form W-2 – Employer will send to you total
earnings for the year by January 31st (You check
for errors)
Form 1099 – Interest earned on savings during
the year, sent by the bank
IRS Instruction booklets and forms – Form
1040, 1040A, or 1040EZ (Teens or people who
make small amounts of incomes)
Personal Records
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Completing Your Tax Return
•Filing Status – Married or Single
•Exemptions – Number of people in the
household
Dependent – is someone who is supported
by a taxpayer’s income.
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•Income – all sources
•Deductions
Tax deductions – reduces the amount of
income that is taxed
Itemized deduction – amounts actually
spent on tax-deductible expenses during the
year
Standard deduction – a set amount that
the IRS allows without listing any actual
expenses
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•Taxable Income – The portion of your
income that is actually subject to income tax
•Tax owed
•Tax Credit – is subtracted directly from the
amount of tax owed
•Final Calculations
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Electronic Filing – on the IRS website.
The Benefits of Tax Planning
•Investing money
•Charities
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