1. Chapter 2 Income Sources
Copyright 2007 Thomson South-Western

2. Types of Earned Income Wages Salaries Tips and commissions
Minimum wage
Overtime pay
Salaries
Tips and commissions
Some workers make most of their earnings from tips rather than wages.
2-1 Earned Income and Benefits
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3. Self-Employment
An entrepreneur takes the risks of being self-employed or owning a business
Advantages
You can make decisions about how to work or run the business
You can keep profits from your work or the business
Disadvantages
Involves high risk
Often requires long work hours
2-1 Earned Income and Benefits
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4. Employee Benefits Forms of pay other than wages or salary
Pay without work
Educational reimbursement
Perks
Insurance
Retirement plans
Profit-sharing and stock option plans
Health flexible spending arrangements
2-1 Earned Income and Benefits
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5. Success Skills Networking
Is the process of making contacts and building relationships with people
Example of contacts include teachers, counselors, and coworkers
Keep track of contacts’ names, addresses, and phone numbers
Helps you stay informed and share information with others
2-1 Earned Income and Benefits
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6. Ethics Using Sick Leave Sick leave is a valuable benefit
Employers have rules regarding use of sick leave
Ethical behavior requires following the company’s sick leave rules
2-1 Earned Income and Benefits
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7. Unearned Income
Is money received from sources other than working in a job
Is taxable
Comes from private and government sources
Examples from private sources: dividends and interest
2-2 Unearned Income
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8. Classification of Types of Income
Earned Income
Unearned Income
Variable Income
Salaries and wages
Dividends
Business profits
Commissions
Interest
Royalties
Bonuses
Capital gains
Rents
Professional fees
Gambling winnings
Tips
Alimony
Social Security benefits
Pensions
Annuities
Source: Internal Revenue Service, (accessed March 6, 2006).
2-2 Unearned Income
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9. Government Transfer Payments
Money and benefits received from local, state, or federal governments
In-kind transfer payments
Examples: food stamps, rent subsidies, and Medicaid services
In-cash transfer payments
Examples: checks, debit cards, or other direct payments
2-2 Unearned Income
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10. Taxes Are required payments to a government
Are collected from many sources
Examples: income taxes, use taxes, and excise taxes
Are paid on earned and unearned income
2-2 Unearned Income
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11. Costs of Paying Taxes Paying taxes reduces disposable income
Less money is left to spend or save
Lower spending may affect the economy
2-2 Unearned Income
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12. Benefits of Paying Taxes
Taxes benefit taxpayers
Example: Social Security tax provides retirement benefits to workers
Taxes benefit all residents
Examples: Highways, parks, government transfer payments
Taxes help provide parks for everyone to enjoy.
2-2 Unearned Income
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13. Building Communications Skills
Critical Listening
Involves evaluating the information you hear
Unneeded or conflicting information is ignored
Can be improved with practice
Helps you make good decisions based on accurate and useful information
2-2 Unearned Income
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14. Focus on... Social Security Benefits
Workers pay into the Social Security fund and receive a statement each year
Payments are matched by employers
The worker receives monthly benefit checks when retired
2-2 Unearned Income
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15. Taxes and Disposable Income
Wages, salaries, and business profits are taxable
Some unearned income is taxable
Lower taxes result in higher disposable income
Higher taxes result in lower disposable income
2-3 Taxes and Other Deductions
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16. Required Deductions Money withheld from a worker’s paycheck
Examples: income tax, Social Security tax, and Medicare tax
Gross pay minus taxes and other deductions equals net pay
2-3 Taxes and Other Deductions
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17. Sample Paycheck Stub
2-3 Taxes and Other Deductions
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18. Income Taxes
Are withheld according to income amount and exemptions claimed on Form W-4
2-3 Taxes and Other Deductions
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19. Social Security Tax Is withheld by the federal government
Provides a system of old-age, survivors, and disability insurance
Requires employers to verify that workers are eligible for employment
Requires workers to complete parts of Form I-9, Employment Eligibility Verification
2-3 Taxes and Other Deductions
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20. Medicare Tax Is withheld by the federal government
Pays for medical care for retired persons and those who receive Social Security benefits
Is paid by workers and employers
2-3 Taxes and Other Deductions
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21. Workers’ Compensation
An insurance plan
Pays medical and disability benefits to workers who are injured or contract diseases on the job
Laws and programs vary by state
Premiums are paid primarily by employers
2-3 Taxes and Other Deductions
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22. Optional Deductions
Payments for items other than taxes that are subtracted from a worker’s pay
Examples: health insurance, vision insurance, savings plan, and retirement plan
Retirement plans allow many retired workers to live comfortably.
2-3 Taxes and Other Deductions
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23. Federal Tax Filing
Whether U.S. citizens must file a federal income tax return depends upon
Gross income
Filing status
Age
Whether you are a dependent
2-3 Taxes and Other Deductions
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24. Tax Forms
Form W-2
Used to report the taxable income a worker received during the calendar year
Form 1040EZ
Designed for use in filing income taxes by single and joint filers with no dependents
Form 1040A
A two-page form designed for use in filing income taxes
Allows more options for income and deductions to be entered
Form 1099-INT
Shows the interest income earned during the year at one bank
2-3 Taxes and Other Deductions
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25. Focus on... Workplace Safety Benefits both workers and the company
Begins with good work attitudes
Is part of everyone’s job
Includes effective emergency plans
2-3 Taxes and Other Deductions
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26. Technology Corner E-Filing
Is a way to file a federal tax return electronically
Provides income tax returns more quickly
Source: United States Department of the Treasury, Internal Revenue Service, (accessed October 16, 2006).
You can learn more about e-filing at the IRS Web site.
1-2 Career Planning
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