Objective 4.01
Students will be able to understand types of work
compensation and forms used for work and income
tax purposes.
http://www.themint.org/kids/decoding-your-paycheck.html
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What are the ways in which an employee can
be paid?
What should employees know about
employment and income tax forms?
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Types of monetary compensation---wages, salary,
commissions, tips, bonuses
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Wages---an amount of money paid for a specified quantity of labor
 Minimum wage---the lowest wage employers may legally pay workers
(set by the Fair Labor Standards Act)
 Types of wages---full-time, part-time, flexible/seasonal, and overtime
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Salary---a set amount of income paid for a set period of time
worked
Commission---income paid as a percentage of sales made by a
salesperson
Tips---also known as gratuities-monies paid by customers to those
who provide services
Performance Bonus---money in addition to base pay, either as
reward for performance or as share of profit
Production – money earned for a volume of product created, more
product made = more gross earnings
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Federal law that first established
Minimum wage
 Maximum hours, Overtime requirements
 Child labor laws
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 # of hours, time limits
 Type of work
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Research:
When was FLSA enacted?
 What is current minimum wage?
 What are limitations on legal jobs for a 16 year old?
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 Type of jobs
 Hours 16 year olds can work
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Non-monetary
compensation-employee
does not get $ in paycheck,
but employer pays for all
or part of these benefits-also known as fringe
benefits, or perks
Benefits are not required
by law, but are offered at
the option of employers
 Individual employees
may negotiate with
their employer for a
“benefits package”,
especially in
management situations
 Employees who are
union members
negotiate for their
benefits
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Types of non monetary compensation
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Paid vacation, holidays and sick leave
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Insurance- group health, dental, life, vision

Cost may be fully or partially paid by employer
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Savings/retirement plans if employer pays portion
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Education-related benefits---tuition, credits, job
training
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Family -related benefits---child care, maternity
leave, adoption leave/support, family leave
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Unemployment Tax- required by law to be paid at
state & federal levels by employer
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Social Security - FICA requires employers to match
every dollar contributed by employee to Social
Security
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When making an
employment
offer/acceptance,
benefits are a
critical element.
Employers offer the
best compensation
package available
to recruit and keep
high quality
employees.
 Paycheck
 Direct
deposit
 Payroll card
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Paycheck –
Traditional paper
document
Issued to an
employee for services
rendered
 Most common
method of payment
for work
 Employer physically
provides the
employee with
his/her paycheck
 Employee takes
check to financial
institution
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Monetary deductions
subtracted for
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Mandatory systematic
 Federal/state income taxes
 Employer sponsored
retirement
 Court ordered garnishment
of wages
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Voluntary deductions
Insurance
Investments
Loan repayments
Pension contributions
and other benefits
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Paycheck stub
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Attached to the paycheck to show the deductions
Retained (kept)by employee for financial records
Contents of paycheck stub
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gross pay, net pay, hourly wage, hours worked,
state/federal withholdings, Social Security tax,
employee’s name, Social Security number, total
earned and withheld, year to date, last day of pay
period
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When employers directly deposit an
employee’s paycheck into an authorized
account
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On payday, Employee receives a paycheck electronic
notice showing deductions
Direct deposit evidence cannot be cashed at bank
More secure because there is no direct handling
of the check & the employee knows exactly
which day paycheck will be deposited and
available for use
DEFINITION:
prepaid card offers
employees an
alternative to paper
paychecks or directly
depositing wages into
an employee’s financial
institution account
BENEFITS TO EMPLOYEES
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Reduces or eliminates check
cashing fees
Offers ability to make
purchases using credit card
networks
Offers 24-hour access to
funds via ATMs; no need to
wait in lines
Reduces the need to carry a
lot of cash
Makes money transfers more
easily available to families
Provides a pseudo-bank
account—funds do not need
to be withdrawn entirely as
when using a check casher
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Benefits to employers
Reduces bank processing and check handling fees
 Reduces check printing costs
 Reduces likelihood of check fraud
 Reduces check reconciliation costs
 Increases employee productivity (no time off to cash
or deposit paycheck)
 Reduces lost/stolen check replacement costs
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Income taxes are:
Taxes paid on earnings
 Mandatory deductions from earnings
 Estimates of taxes owed
 Known as progressive taxes; the higher the income
earned, the higher the % rate of taxes
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 In contrast, sales taxes are regressive taxes; they impose
same rate to all sales of goods; therefore; higher taxes
(in comparison to earnings) are paid by those with
lower incomes than those with higher.
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Used before beginning a job
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W-4 – the Employee’s Withholding Allowance
Certificate; information provided here determines
the percentage of gross pay to be withheld for taxes
I-9 – the Employment Eligibility Verification form;
information gathered in this form is for employers to
verify eligibility of individuals for employment;
helps avoid hiring undocumented workers or others
who are not eligible to work in the United States
Social Security card or other identification
irs link: W-4 simulation
Complete simulation 1
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Completed by
employee for
employer
payroll records
Provides
information for
tax deductions
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Marital status
Exemption
status
SIMILAR FORM - NC-4 FOR TAX
WITHHOLDING FOR NORTH
CAROLINA RESIDENTS
irs link: calculate payroll taxes
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http://www.irs.gov/app/understandingTaxes/student/simulations.jsp
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Complete Module 1: W-4
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Identity document
Required use for
Federal Income Taxes
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I-9 proves your right to
work in US if you are not
a citizen.
Employment
Identification and
Verification Form
Employers must complete and
retain a Form I-9 for each
individual they hire for
employment for 3 years
from date hired
The form must be available for
inspection by authorized
U.S. Government officials
(e.g., Department of
Homeland Security,
Department of Labor,
Department of Justice).
On the form, the employer
must examine the
employment eligibility
and identity document(s)
an employee presents to
determine whether the
document(s) reasonably
appear to be genuine
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Used after end of year when filing income taxes
W-2 - states amount of money earned and taxes paid
through previous year
 Issued by employer to employee by January 31 of
following year
 Form 1040/1040A/1040EZ - common forms for filing
federal income tax return
 1099 Forms - Tax forms that report other sources of
income earned during a tax year. 1099-INT for interest
income, 1099-DIV for dividends on investments, and
1099-MISC for other sources of income such as contract
labor
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Reports actual income and
deductions for the tax
year
Taxpayer must file by
April 15th of the following
year
Actual due compared to
estimated payments
Results in either refund or
additional payment to IRS
SAMPLE 1099 FORM
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Reports income not
related to employment
Examples:
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1099-DIV
 Dividends
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1099- INT
 Interest income
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1099-MISC
 Contract labor
 Distribution of pensions
 Miscellaneous income
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http://www.irs.gov/app/understandingTaxes/student/simulations.jsp
Complete Module 2 & 3:
W-2, Form 1099-Int, 1040EZ
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Complete Module 7: Standard Deduction
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Employees must retain appropriate records:
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Records of deductible expenses, including receipts
and bank statements
Social Security number serves two major purposes:
(1) provides a record of your covered earnings for
retirement and disability benefits and (2) serves as
an identification number for the Internal Revenue
Service
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Unwrap and slice the Payday candy bar. Read the
ingredients list on the label. Note: Just as each candy slice
contains some of each ingredient, so each paycheck contains
specific kinds of information.
Have students scan FEFE 1.13.1.F1 information sheet
“Understanding Your Paycheck” and complete the graphic
organizers Appendix 4.01A, “Forms of Compensation,”
Appendix 4.01B, “Money In, Money Out,” and Appendix
4.01C, “Employment, Wage and Tax Forms”
Have students complete the note-taking guide, FEFE
1.13.1. L1, “Understanding Your Paycheck and Tax Forms”
as they view FEFE PowerPoint “Understanding your
Paycheck.” Answer questions; discuss.
(In advance, download a blank Form W-4 and Form I-9 from
www.irs.gov). Stop at slides 12 and 13 and guide students
as they complete Form W-4 and Form I-9.
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" W-4, work some more"
“W-2 your taxes are due".
1040EZ as in "easy" and
I-9-like the interstate- you travel from place to
place and sometimes you travel across the
border and you need to prove your citizenship,
i.e. Canada, Mexico.
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Map your financial
future
Money doubles by the
“Rule of 72”
Your credit past is
your credit future
Start saving young
Stay insured
Budget your money
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Don’t borrow what
you can’t repay
Don’t expect
something for nothing
High returns equal
high risks
Know your takehome pay
Compare interest
rates
Pay yourself first
http://www.jumpstartcoalition.org/files2010/2010_J$_Calendar.pdf