You & Your Money Class 1, Part 1 – Your Income International Center at Catholic Charities Community Services April 2013 Instructor: Virginia Guilford

Class Schedule Class 1 - Thursday April 11, 4:00 – 5:00 PM Your Income Your Taxes Class 2 – Thursday April 18, 4:00 – 5:00 PM Your Budget Your Bank Accounts Class 3 – Thursday April 25, 4:00 – 5:00 PM Your Credit Learning More

Please Be Aware This course does not give you professional advice I am not a lawyer. I am not an accountant. I am not a banker. This course explains the basic concepts and vocabulary that you need for understanding work, taxes, budgeting, banking and credit. Please note – the information in this class is not the kind of ‘official’ advice that you might get from an accountant, a banker, or a lawyer. I am not a professional, and I cannot give you professional advice about money.   But I have tried here to explain the vocabulary and the basic concepts used at work, at the bank or on credit card applications. I expect that this class will give you a better understanding of this old-fashioned and formal language. The Word document that I will make available by email after this workshop is complete contains a glossary where I have provided definitions for the most commonly used financial and business terms.

Your Income Income is generally the money that you receive from your work. Your Work What kind of a worker will you be? When are you expected to work? How will you be paid? What benefits will you receive? Income is generally the money that you receive from your work. Some income can also be money that you get from interest earned by your bank savings account, or dividends from your investments, or rent that you collect for property you own. And other income may come from something that you sell. But most income comes as a result of being a worker with a job.   Getting the job to provide that income is not easy. But once you have written up your resume, applied for a job, and gotten hired, you will need to think about this job. What kind of worker will you be? When are you expected to work? How will you be paid? And what other benefits will you receive?

Kinds of Workers Employee Working as an employee means that your pay and your working conditions are regulated by Federal and State laws about employees Full-Time Employee Part-Time Employee Hourly Employee Kinds of Workers You may be working as a full-time employee, a part-time employee, an hourly employee, or you may not be an employee at all, but working as a free-lance or contract worker. Working as an Employee Your pay and your working conditions are regulated by Federal and State laws about employees. Tax withholding. Benefits deductions. Other protection – severance pay, minimum wage. Full-Time Employee A full-time employee generally works 35 or 40 hours a week. You must be given a written statement describing the amount of your pay, uually in terms of annual pay - for example $28,000 per year. You will also be told what benefits come with this job. Part-Time Employee A part-time employee has an agreement to work a fixed number of hours, usually 20 hours or less each week. Part-time employees get some, but not all, of the benefits that full-time employees get. Hourly Employee If you are an hourly employee, you will be paid for each hour that you work.

Kinds of Workers Freelance / Contractor Working as a free-lancer or independent contractor is like having your own business. Working as a Freelancer/Independent Working as a free-lancer or independent contractor can be like having your own business. You and your client will negotiate the payment that you want. You may be paid a certain amount for each hour you work, you might be paid a daily rate, or you might be paid a fixed price for a whole project. You (or your business) must pay for any benefits that you want. You (or your business) must make all the payments to the government for your taxes, Social Security and Medicare contributions. Some of the expenses of your business (some transportation costs, costs of equipment or uniforms) will be deductible when you calculate how much tax you will owe. Note that in some cases you will be working as a ‘contract employee’ – meaning that you are an employee of an agency that sends you to the client site. The agency usually pays you based only when you are working at the client site. This kind of employment is like part-time or hourly employment, and usually does not include benefits like health insurance or paid vacation, although taxes will be withheld from your wages. But some freelance work is very casual – like being a babysitter, or helping someone by walking their dog. If your work is very short-term and you only make a small amount of money, you probably won’t owe any tax on your earnings, and you don’t need to make any government payments. Q – has anyone worked as an employee? Has anyone worked as a freelancer or contractor? 6 6

Kinds of Workers Working for Tips Working “Off the Books” Some workers get no pay at all, or very little pay. The only money they make is from the tips they receive from customers. Workers in a nail salon may work for tips only. Most waiters and taxi drivers earn only a very small salary, and the majority of the money they make is from tips. Working “Off the Books” ‘Off the Books’ income is not reported to the government for tax purposes, and no taxes or social security payments are made. Working for Tips Working for tips is common in service work, like taxi drivers, waiters, and nail salon workers. The workers earn very little (and sometimes nothing) as a salary – the majority of their pay comes from tips. Working for tips can provide a good income, if the tips are high and the worker is very pleasing to the customers, but tips are not a guaranteed income. Q –Has anyone worked for tips? Are you comfortable with tipping? 7 7

Working Hours and Paid Time Off Holidays Sick Days Vacation Every job has its own rules about what hours you are supposed to work. But it can be useful for you to know what the usual working hours are for most people.

Working Hours A full-time employee in a large corporation generally works 35 or 40 hours a week. The traditional hours for work were 9:00 AM to 5:00 PM, but now are 8:30 – 5:30, or even 8:00 to 5:00 Part-time workers commonly work less than 20 hours a week. Working Hours A full time employee in a large corporation generally works 40 hours a week. The usual hours for work are 9:00 AM to 5:00 PM, Monday through Friday. Other common work schedules are 8:30 to 5:30, or 9:00 to 6:00, or 8:00 to 5:00. Some highly-paid workers, like lawyers or financial analysts, or executives, are expected to work many more than 40 hours a week, with no extra pay. But most lower-level jobs will either give you extra money, or give you compensatory time off, if you work longer than usual. Compensatory time off is often referred to as ‘comp time’.   Part-time workers commonly work less than 20 hours a week – sometimes they work just a few hours every day, or sometimes just 1 or 2 full days a week. QUESTIONS: What are the normal working hours in your country? What would be a good way to find out about what hours you are expected to work?

Holidays Holidays observed by almost everyone: Holidays are days when your company is closed, and you are not obliged to come to work. Holidays observed by almost everyone: Thanksgiving (the 4th Thursday in November) Christmas Day (December 25) Additional holidays observed by most corporations: New Year’s Day (January 1) Memorial Day (last Monday in May) Independence Day (July 4) Labor Day (the first Monday in September) Other holidays commonly observed here in New York: Martin Luther King Day (3rd Monday in January) Presidents’ Day (3rd Monday in February) Good Friday (Friday before Easter Sunday) Columbus Day (a holiday in New York State, 2nd Monday in October) Veterans’ Day (November 11) Holidays are days when your company is closed, and you are not obliged to come to work. See detailed information about US Holidays at Wikipedia here en.wikipedia.org/wiki/Public_holidays_in_the_United_States QUESTIONS: Does anyone work someplace that is open on some of these holidays? A restaurant? Does anyone work in a place that has different holidays? A religious institution might be closed on certain religious holidays that are not shown here.

Sick Days Most companies allow employees to stay home but still be paid if they are sick. This kind of paid time off is called Sick Pay, and the days you take off because of being sick are ‘sick days’. The number of sick days you can take is different at different companies. Most companies allow employees to stay home but still be paid if they are sick. This kind of paid time off is called Sick Pay, and the days you take off because of being sick are ‘sick days’. The number of sick days you can take is different at different companies. If you are working as an hourly or part-time employee, you may or may not be eligible for sick pay. If you are working as a free-lancer, you will almost certainly not be paid for hours/days when you did not work.   Sick days do not usually need to be scheduled in advance, but it is expected that you will only take one or two sick days, unless you are seriously ill. Sometimes, you cannot take paid sick days unless you can actually prove that you were really sick. For example, some companies require you to provide a doctor’s note or letter explaining your illness, if you are sick for more than 3 days.

Vacation One or two weeks of paid vacation each year is usual for full-time employees. Some companies are closed for a certain time when everyone takes their vacation. Some companies require you to schedule your vacation by asking for approval from your manager. The usual amount of paid vacation for full-time employees is one or two weeks. Three or four weeks of vacation is sometimes given to more senior employees or employees who have been with the company for many years.   Some companies closed for a certain time when everyone takes their vacation – for example, a company may close for the week between Christmas and New Year’s Day, or a factory may shut down every year in the month of August. If your company does not have an obligatory closed time when everyone takes vacation, you will have to schedule your vacation with your supervisor or manager. QUESTIONS: What is the vacation schedule where you work? Do you have more vacation than 2 weeks? No paid vacation at all?

Personal Days & Family Medical Leave Sometimes, a company will give employees two or three paid personal days off in addition to vacation days. Large companies are required by the Family Medical Leave Act to provide 12 weeks of unpaid leave for extended family situations, such as illness or the birth of a child. Personal Days Sometimes, a company will give employees two or three paid personal days off in addition to vacation days. Personal days are days off that you schedule in order to meet personal requirements, such as celebrating a religious holiday, or meeting family responsibilities, or similar reason. Family Medical Leave Act Large companies are required by law to provide 12 weeks of unpaid leave for extended family situations, such as illness or the birth of a child. While you get no money, your job is held for your return. Smaller employers are exempt from this requirement

Union Membership Unions represent their members in negotiations for pay and benefits Some jobs are associated with unions Truck Drivers (and others) are represented by the International Brotherhood of Teamsters Actors are represented by Actors Equity Association Union membership cannot be required You may not be required to be a union member. But, if you do not work in a Right to Work state, you may be required to pay union fees.

Getting Paid Gross Pay and Net Pay Payment Method Pay Periods 15 15

Gross Pay & Net Pay Gross Pay is the total amount you have earned. Net Pay is what you actually receive; it is your gross pay minus any amounts that have been withheld, such as: Taxes Union Dues Health Insurance If you are an employee, certain deductions will be made from your ‘gross pay’ (the total you earned) for tax withholding, union dues, health insurance deductions, etc. The amount that is left is called your ‘net pay’. QUESTIONS: - Has anyone here received a paycheck that was lower than what you expected because of these kinds of deductions? Has anyone heard the business expression “Net, Net”? What do you think it means?

Payment Method Direct Deposit – your pay is deposited directly into your bank account by your employer. Check – your pay is given to you in a check. Cash – your pay is given to you in cash. Direct Deposit Deposit your pay directly into your bank account. The company asks for information about your bank account number, so that your pay can be deposited. Instead of a check, you are given a ‘Payment advice’ – this looks like a pay check, but it is just the information about the amount that was deposited into your account. It will list the gross amount of your pay, any amounts deducted for tax withholding or benefits, and the net amount. Check Receive a check from the person or company that you are working for. The check may be mailed to you, or you might be given the check by a person at work. For an employee , the gross amount, the amounts that have been deducted, and the net amount will be written somewhere on the check. For a free-lancer, the check will be for the full ‘gross pay’ amount. Check Cashing Stores A store that offers check cashing. Check cashing stores charge you a small fee for cashing your check. These stores usually cash government checks, but they may cash a pay check from a big employer. The fee might not seem like a lot, but you should try to find an alternative. One alternative is to ask at your workplace. Often they will have an arrangement with the bank that they use to write their pay checks, and you can go there with your work ID, and that bank will cash your pay check at no charge. Cash Sometimes you will be paid in cash. If you are an employee, cash payments may be presented in a ‘pay envelope’ which has your gross pay amount, the amount of any deductions, and your net pay written on the outside of the envelope. If you are a casual worker, like a babysitter, your whole pay is likely to be just handed to you in cash.

Pay Periods Weekly Every 2 Weeks Twice a Month Monthly Daily/End of Project Pay Periods The ‘pay period’ is the regular time that you will receive your pay. Weekly Every week, on the same day. Many employers pay on Thu or Fri. Divide the annual pay amount by 52 to determine your gross pay for each pay period. annual pay is $25,000 a year, divide 25,000 by 52 to determine that your gross pay will be $480.77 each pay period. Every 2 Weeks Every two weeks. This is a common pay schedule for large companies. Divide the annual amount by 26 to determine your gross pay for each pay period. Annual pay is $25,000 a year, divide 25,000 by 26 to determine that your gross pay will be $961.54 each pay period. Twice a month Twice a month. Usually payment is made on the 1st and 15th of the month, or the next business day after those dates. Divide the annual amount by 24 to determine your gross pay for each pay period. Annual pay is $25,000 a year, divide 25,000 by 24 to determine that your gross pay will be $1,041.67 each pay period. Monthly Once a month. Usually payment is made on the 1st of the month, or the next business day after. Divide the annual amount by 12 to determine your gross pay for each pay period. Annual pay is $25,000 a year, divide 25,000 by 12 to determine that your gross pay will be $2,083.33 each pay period. Daily/End of Project End of each day’s work, or at the end of the project. A daily payment is usually made in cash, but might be a check. This kind of pay period is often used if you are being paid an hourly rate with a different number of hours each time you work. It is also often used if you are a casual, free-lance worker, such as a baby sitter, house cleaner, or gardener.

Benefits Benefits are valuable things that you get from your employer in addition to the money that is your salary. Health Insurance Life Insurance Disability Insurance Workers Compensation Retirement Savings Contributions Other Benefits Benefits Benefits are valuable things that you get from your employer in addition to the money that is your salary. If you work for a large company, there will be a department call Human Resources (or HR) which can provide information on the benefits that you will get.

Health Insurance Health Insurance Not all employers offer health insurance If it is offered, you may be required to pay some or all of the costs Many people hope to get a job that includes a health insurance benefit Health Insurance Your employer may pay all the cost, or he may pay only part of the cost, and the rest of the cost of the health insurance will be paid by you. Many people hope to get a job with a health insurance benefit, but remember that this benefit may reduce the salary that you receive, and you may be able to get health insurance on your own through an organization that you belong to, such as a union or club.   20 20

Life Insurance Life Insurance Typically an employer will offer a life insurance policy for the amount of your annual salary Additional multiples of your annual salary might be available at extra cost to you  Life Insurance Your employer may pay all the cost, or part of the cost. Usually - a life insurance policy in an amount equal to the amount of your annual salary is paid for by your employer, with multiples of your annual salary if you pay the extra cost. 21 21

Disability Insurance Disability Insurance Provides some income to you if you are injured so badly that you cannot work. Social Security also provides some insurance against disability. Disability Insurance Provides some income to you in case you are very sick or become disabled and cannot work. Social Security also provides disability payments if you cannot work. 22 22

Workers Compensation Workers Compensation. A kind of insurance that covers you if you cannot work because of an injury that happened at work. Workers Compensation Covers disability that is a result of workplace injuries. The cost of this benefit is completely paid for by your employer. 23 23

Retirement Savings Contributions IRS has rules that determine what percent of your salary can be put into tax-free retirement savings. Cannot take out this money until age 59 ½ Early withdrawal is taxable Early withdrawal has penalties 401k IRA Retirement Savings Employer Matching Plans Retirement Savings (401k plans, IRA accounts) The Internal Revenue Service (IRS) has rules that determine what percentage of your salary you can put away in retirement plans without paying income tax on that money. In most cases, you can’t take money out of your retirement account until you are 59 ½ years old. Early withdrawal – income tax plus penalty So, you should be sure that you won’t need this money right away. A 401k plan is the most common type. IRA - if your employer doesn’t offer a 401k plan, you can open your own IRA. Retirement Savings Employer Matching Plans Your employer may offer to ‘match’ some part of what you put in your 401k. 24 24

Other Benefits Other Benefits Room & Board Meals Free Apartment There may be other benefits that are unique to a particular workplace. For example, workers at a logging camp, may be given meals and a bed in a dorm. A busboy in a restaurant may be given free meals. A building superintendent is often given an apartment. QUESTIONS – have you ever received a benefit like this? 25 25

You & Your Money Class 1, Part 2 – Your Taxes International Center at Catholic Charities Community Services April 2013 Instructor: Virginia Guilford

Your Taxes All US citizens and resident aliens need to pay taxes if they have over a certain amount of income. Types of Taxes (Federal, State, City, Social Security, and Medicare) Tax Periods Tax Withholding Estimated Tax Payments Tax Refunds YOUR TAXES All US citizens and resident aliens must file a tax return if they have over a certain amount of income. But not everyone has enough income to be required to pay taxes. And not all money you receive is taxable income – income you receive because of grants, scholarships, and gifts may not be income that you need to pay taxes on. Whether you need to pay taxes or not depends on many different things. You may not have to pay taxes if your total income for the year was below a certain level ($9,350 in 2010). Also there are special rules for people who are not US citizens - international students, international visitors, resident aliens, etc. If you are not a US citizen, check with an accountant or financial advisor for specific rules that apply to you.   Even if you do not owe any taxes, you may want to file a tax return if you had taxes withheld from your wages so that you can get this amount refunded to you, or if you qualify for some benefit, like the Earned Income Tax Credit. In this section, we will discuss types of taxes (Federal, State, City, Social Security, and Medicare), tax periods, tax withholding, estimated tax payments, and tax refunds. QUESTIONS: Has anyone here paid US income taxes?

Types of Taxes Federal State City Social Security Medicare

Federal Taxes Collected by the US government through its tax collection agency, the Internal Revenue Service (the IRS) Federal Taxes The term Federal refers to the government of whole United States Federal taxes are taxes that the US government collects through its tax collection agency, the Internal Revenue Service (IRS). Usually these Federal taxes are income taxes – taxes based on a percentage of what you earn or receive as dividends or interest. 29 29

State Taxes State taxes are taxes that each state collects Some states have an income tax, some do not. Some states collect a ‘commuter’ tax – an income tax for people who work in the state, but do not live there In addition to income taxes, some states and/or counties collect property taxes which are based on the value of any property that you own State Taxes State refers to taxes that are owed to the state that you live or work in QUESTIONS: Can you name some states in the United States? State income taxes are taxes that each state collects. Some states have an income tax, and others do not. Some states (New Jersey is one) collect a ‘commuter’ tax. For example, if you work in Jersey City, NJ, you will owe some income tax to the state of New Jersey, even if you actually live in New York City, in Albany, or in Pennsylvania. (In addition to income tax, some states and/or counties collect property and/or school taxes from property owners – these taxes are based on a percentage of the value of the property owned.) 30 30

City Taxes A few large cities collect income taxes New York City collects an income tax for residents Yonkers collects an income tax for residents City Taxes City refers to taxes that are owed to the city that you live or work in A few large cities collect income taxes from residents of that city. Both New York City and Yonkers collect a city income tax. 31 31

Social Security Taxes Social Security pays a small pension to older people and people who are disabled To fund Social Security, 15.30% of all wages up to a certain amount ($113,700 in 2013) must be paid to Social Security Employers pay half this amount for their employees, and withhold the other half from their employees’ pay Self-employed people must pay the full amount themselves Social Security Contributions Social Security is the program which pays a small pension to older people and people who are disabled. In order to fund the Social Security program, 15.30% of all wages up to a certain amount ($106,800 in 2009) must be paid to Social Security. Employers pay half this amount for their employees, and withhold the other half from their employees’ pay. Self-employed people must pay the full amount themselves. 32 32

Medicare Taxes Medicare is the health insurance system for people over 65 To fund Medicare, 2.9% (in 2013) of all wages must be paid to Medicare Employers pay half this amount for their employees, and withhold the other half from their employees’ pay Self-employed people must pay the full amount themselves Starting in the year 2013, the tax percentage rate will be increased for higher-income individuals, and the income subject to the Medicare tax will be expanded to include investment income. Medicare Contributions Medicare is the health insurance system for people over 65. In order to fund this program, 2.9% of all wages must be paid into the Medicare system. As with Social Security, employers pay half this amount for their employees, and withhold the other half from their employees’ pay. Self-employed people must pay the full amount themselves. 33 33

Tax Periods Annual Tax Period Jan 1 – Dec 31 Quarterly Tax Periods Annual tax is based on the total amount of money you earned in the previous year (from 1/1 to 12/31) Quarterly Tax Periods First Quarter/Q1 Jan 1 – Mar 30 Second Quarter/Q2 Apr 1 – Jun 30 Third Quarter/Q3 Jul 1 – Sep 30 Fourth Quarter/Q4 Oct 1 – Dec 31 Annual tax that you owe is based on the total amount of money you earned in the previous year – from January 1 through December 31. You are given until April 15 of the next year to calculate the amount that you owe. You can pay your taxes any time between January 1 and April 15. If you pay later than April 15, you may have to pay a penalty – extra money – for paying late. Some of the money that you earn is ‘exempt’ from taxes – you are not taxed on that income. The exempt amounts include a basic amount for yourself, some for each of your dependants (spouse or children or other people that you support), some for special hardships that you might have (being blind or having a lot of doctor & hospital bills to pay), and some is exempt because you have put it in a special retirement savings account. But the rest of your income – the income that is not ‘exempt’ is what you will have to pay tax on. The tax you owe is a percentage (15% for low income people, 28% for middle income people) of your non-exempt income. QUESTIONS: Is everyone familiar with the usual way of abbreviating the months? JAN, FEB, MAR, APR, MAY, JUN, JUL, AUG, SEP, OCT, NOV, DEC.

Tax Withholding for Employees Tax Withholding is a part of your salary that your employer uses to pre-pay your taxes. If you are an employee, your employer will withhold part of your salary and send it to the Federal and State tax authorities. Your employer will ask you to fill out a W-4 form when you start work to help him estimate how much income tax you will owe at the end of the year. The employer then deducts a percentage of that total amount in each paycheck (tax withholding), and sends it to the Federal, State, and City governments. Tax Withholding If you are an employee (rather than a freelance or contract worker), you will be asked to fill out a W-4 form showing some basic information about yourself. This will provide your employer with information that will help them estimate how much non exempt income you will have, and how much income tax you will owe at the end of the year. The employer then deducts a percentage of that amount in each paycheck, and sends it to the Federal, State, and City governments. In January, you will then receive a form from your employer, called a W-2 form, which will show the total amount of money you earned in the previous year (from January 1 through December 31), and how much tax was withheld and sent to the government.   If all the calculations were correct, you will not owe anything more for your tax bill when it is due on April 15. If, when you prepare your tax return, it shows that too much tax was withheld, you will get a refund. If not enough tax was withheld, you will have to pay the extra amount. QUESTIONS: Has anyone filled out a W-R form? (This would be done at the same time you would fill out the I-9 form that proves that you are eligible to work in the US.) Do you think it is a good idea to say that you have more dependants than you really do, so that less will be deducted from your paycheck? If you did that, what would happen when your taxes are due?

Estimated Tax Payments for Freelancers If you are a freelance worker or a contractor, tax payments are not withheld from your pay. You are expected to estimate what you will owe, and make an estimated tax payment at the end of each quarter (Apr 15, Jun 15, Sep 15, and Jan 15). Note: if the 15th of the month is on a Sunday or a holiday, the due date is the next day. Estimated Tax Payments If tax payments are not withheld from your pay (if you are a freelance worker or a contractor, and your pay check is the full amount of your gross pay with no deductions), you are expected to estimate what you will owe, and make an estimated tax payment at the end of each quarter (Mar 30, Jun 30, Sep 30, and Dec 31). If you do not make any estimated payments, or if your estimated payments are too low to cover what you owe, you may be required to pay a penalty (an extra amount of money) when you pay your taxes. Question: -What are some good ways to make sure that you set aside enough money from your earnings to pay your estimated tax payments when they are due?

Tax Refunds If you had more tax withheld from your income than you owe, you will get a refund after you file your taxes. Tax Refunds If you had more tax withheld from your income than you owe, you will get a refund after you file your taxes. And often, if you work only part-time, you will be eligible for a refund. This is why it is sometimes a good idea to file a tax return, even if you think you don’t owe any money. QUESTIONS: Do you think it is a good idea to have more withheld from you pay so that you will get a big refund when you file your taxes?

Where to Get Tax Help If you want to know more about taxes in general, you can visit the IRS Understanding Taxes website at www.irs.gov/app/understandingTaxes/index.jsp The IRS (Internal Revenue Service) has a website (www.irs.gov/ ) and offices in most cities where you can get answers to specific questions you have about your Federal income taxes. State tax departments also have websites and phone numbers for questions. (The New York State Department of Taxation & Finance website is www.tax.state.ny.us/ ) Reputable tax preparers, such as tax accountants and companies like H&R Block can prepare your Federal, State, and City tax returns for a fee. QUESTIONS: Has anyone here done their own taxes? Did you use tax software like TurboTax or H&R Block at Home or Tax Actr?

You & Your Money Glossary A list of commonly used financial terms with definitions. Go to www.virginiaguilford.com and download the Glossary from the “Docs and Links” page. (The PowerPoint presentations used in this class are also available there) Or send your request to vg@virginiaguilford.com