Unit 8 Income Terms & Definitions Mrs. Morrey Financial Literacy

Terms WAGES A fixed amount of money paid to an employee for each pay period. Pay periods Weekly Bi-Weekly Bi-Monthly Monthly

Terms INSURANCE An agreement in which a person makes regular payments to a company and the company promises to pay money if the person is injured or dies, or to pay money equal to the value of something (such as a house or car) if it is damaged, lost, or stolen. A method of spreading individual risks among a large group of people to make losses more affordable to all. Examples: Health Insurance Automobile Insurance Life Insurance Home Owner’s and Renter’s

Terms CAFETERIA-STYLE BENEFITS Benefit packages that allows workers to choose the benefits that best meet their personal needs. Similar to a cafeteria where individuals select their food of choice, employees may choose benefits of their choice. These plans become more useful as diversity within workforces continues to grow. For example, the benefit needs of young families may differ greatly from those of a single person.

Terms ECONOMIC CONDITION Consumer prices, consumer spending, unemployment and interest rates at a given period of time. Current Unemployment Rate: 5.1% (7.9 million people) Current 30 Year Mortgage Rate: 4% ($300,000 loan  $1450.00 monthly payment, Total cost of the loan over 30 years  $516,000 Current Credit Card Interest Rate: 15%

Terms INCOME Money that a person receives such as a paycheck from a job, an allowance from parents, an inheritance, or interest earned on a savings account. 2014 Inheritance Tax Rate: 35-40% on estates valued at over 5.34 million dollars. Typically Estates pay taxes prior to being distributed to beneficiaries. Average Riverton Income: $83,500

Terms COST OF LIVING The price of food, transportation, housing and other expenses.

Terms PENSION PLAN A retirement plan that is funded at least in part by an employer. Method of saving money now for retirement later.

Terms BENEFITS Something a company offers besides a paycheck. Health Insurance Retirement Plan Tuition Reimbursement Paid Leave Profit Sharing Stock Options

Terms LEAVE A period of time away from your job, sometimes paid for. Sick Leave Vacation Days Maternity Parental Leave

Terms RETIREMENT The age at which you stop working full time and are eligible for government benefits. Previously, full benefit age was 65 and early retirement was 62. If you were born after 1960, retirement age is r 67.

Terms INVESTMENT The use of savings to earn a financial return. You allow the government, credit union, bank and other financial institutions to use your money (savings) and in return, they pay you interest income. You are “loaning” a financial institution money instead of them loaning you money.

Terms EXEPMPTION A tax break received because of particular circumstances, generally dependency. Reduces taxable income. Examples: Single Tax Payer 2014 Exemption: $3,950 Each dependent increase the exemption amount. Two Exemptions $7,900 Three Exemptions $11,850 Four Exemptions $15,800 Six Exemptions $23,700

Terms MORTGAGE An agreement that a borrower gives a lender in return for the lender giving a loan for the purpose of buying property. Mortgage Terms 10 Years 15 Years 20 Years 30 Years Average cost of a home in Riverton: $263,000

Terms ESCROW An account usually set up by a mortgage for the purpose of collecting and paying taxes and insurance on property. Escrow is an addition to your mortgage payment and will increase your overall payment. Mortgage insurance is also added to escrow.

Terms ADJUSTABLE RATE MORTGAGE (ARM) A mortgage in which the interest rate can move up and down on a periodic basis. Why ARM? Lower interest rates on early payments, higher rates on later payments (rate may begin at 6% and increase to 11% by the end of the loan). Cheaper for owners who do not plan on living in the home for a long period of time.

Terms POINTS A mortgage term that refers to the fee a lender charges the borrower for lending money. One point equals 1% of the loan value. $100,000 loan, one point is $1,000 A lender will charge the borrower points as a payment for borrowing the money. This is in addition to the interest calculated into the loan and is paid upfront. Most lenders charge borrowers 2 points minimum when the loan is taken out. $250,000  Two points = $5,000

Terms GARNISHMENT A court order to an employer to withhold some of an employee’s wages; that money must be sent to the court to pay someone who has won a lawsuit against an employee. Examples: Child Support Alimony Back Taxes Court Fines Civil Judgements

W-4 A form used by your employer to withhold the proper amount of federal income tax from your paycheck. W-4 is filled out each time you start a new job and it is recommended you fill a new one out each year.

I-9 U.S. Citizenship and Immigration document used by an employer to verify an employee’s identity and establish that the worker is eligible to work inside the United States. Must be filled out each time you start a new job.

W-2 A form all employers are legally required to send to employees reporting the amount of federal income tax paid by the employee for the current year. This form is required in order for an individual to prepare their income taxes. Form must be sent to all employees by January 31st.