1. INCOME TAXES (How much will you keep?)

2. GROSS PAY / DEDUCTIONS & NET PAY
Your paycheck (stub) contains vital information which needs to be reviewed and understood
GROSS PAY = Total pay before deductions
Net Pay = The amount of your paycheck after deductions (“Take-home Pay”)
Regular Wages or Salary + Overtime = Gross Pay
Gross Pay – Deductions = Net Pay
Direct Deposit

3. Hourly vs. Salaried Employees
Hourly Wages:
(Rate of pay) x (# of hours worked)
Overtime pay must be calculated at 1.5x rate of pay (Fair Labor Standards Act) – standard work week is 40 hours
Minimum wage in IL - $8.25 (subminimum wage)
Commission / Tips / Piecework
Salaried Employees:
Regular hours & a set amount of pay (usually stated as yearly salary & broken into equal increments)
Example - $36,000 annual salary – no overtime unless negotiated
Monthly Pay – ($36,000 / 12 = $3000 per month gross)
Bi-weekly – ($36,000 / 26 = $ every 2 weeks)
Bi-monthly – ($36,000 / 24 = $1500 twice a month)
Weekly – ($36,000 / 52 = $ every week)

4. REQUIRED Deductions Amounts subtracted from gross pay (Government)
Federal / State & Local Income Tax
Support multiple “public goods” & “programs” (roads / schools / defense / welfare / etc.)
The largest source of income for the Federal government is from Income taxes (43% of all revenue)
Social Security Tax (FICA)
Federal Insurance Contributions Act
Government supported retirement program
% of Gross Income
Employer matches
Medicare Tax
Government supported health insurance for retirees
Employer matches up to certain $ amount

5. OPTIONAL Deductions Amounts subtracted from gross pay (Personal Option)
Health Insurance
PPO / HMO / etc.
Retirement Savings (401k / 403b / etc.)
Vested
Life Insurance
Union Dues
Employee Stock Options Plan
Savings Accounts
Various Others (parking / gym / etc.)

6. Employment Classifications
Full-Time
Full access to benefits & better pay
Part-Time
Fewer hours – benefits may or may not be offered
Temporary
Short-term assignments (leaves / busy periods)
Employment agencies may provide benefits
Contract
Specified time period for project completion
Usually no benefits unless stated in contract

7. Homework
Review Questions - Chapter 8 (pg. 206; 1-13)
(Due Wednesday)

8. TYPES OF TAXES Progressive Taxes (Income Tax):
The more you earn – the higher amount of tax comes out of your pocket (Tax Brackets)
Regressive Taxes (SALES TAX):
Smaller share of income is collected as income grows – SALES TAX is regressive – straight % for sales tax
Proportional Taxes (PROPERTY TAX):
FLAT TAX – all members of a community pay the same amount regardless of earnings or value

9. FEDERAL INCOME TAX THE UNITED STATES TAX SYSTEM
All U.S. citizens and businesses pay taxes to the government which the government uses for a variety of purposes – public education / police / fire / roads / etc.

10. INCOME TAX – DOCUMENTS Statement of Annual Earnings (Form W-2)
Sent by employer before January 31
Employee Withholding Sheet (Form W-4)
This will let the employer know how much to take out of you pay for taxes (page 201)
If this form is completed incorrectly you may have too much or too little take out of your paycheck
Withholding too much
This will result in a tax REFUND after filing
Some people may use this to save money – no saving’s interest
Withholding too little
This will result in a tax liability – you will owe more $$ to IRS
Avoid this tax bill by: paying extra $$ / change your allowances

11. Progressive Taxes INCOME TAX
The ability-to-pay principle - individuals with higher income should pay a higher percentage of their income
Income tax is progressive – the more money earned the higher % is required to pay to the government
Approved and changed by Congress and the President
Collected by the Internal Revenue Service (IRS)
Based on Voluntary Compliance & people paying fair share
Determined by a tax return filled out by April 15 of each year based on the “Tax Formula”
GROSS INCOME (Wages / interest / tips / etc.)
-ADJUSTMENTS (Retirement plans / alimony / etc.)
=ADJUSTED GROSS INCOME
-ITEMIZED DEDUCTION or STANDARD DEDUCTION
-EXEMPTIONS
=TAXABLE INCOME
***Tax Tables will determine how much will be paid

12. TAX RETURNS
Returns should be completed with the idea of paying your fair share & taking advantage of all laws designed to give tax relief
Every American files a tax return before April 15th of each year to determine if they have paid the correct tax amount based on their total income
You may file online ( – Turbo-tax
Filing Status
Single (not married)
Married filing jointly
Married filing separately
Head of Household (providing a home for dependent people whether married of single & qualified)

13. WHICH TAX FORM? Form 1040EZ Form 1040A Form 1040
Single or Married filing jointly
One Exemption for self & spouse if applicable
Income less than $50,000 on Line 6 of form
Income from wages, salaries, tips / Interest income of less than $1500 / Unemployment compensation / Taxable scholarship
Form 1040A
Any filing status
All exemptions you qualify for
Income less than $50,000 on Line 25
Income from same as above
Form 1040
All exemptions you are entitled to
Any amount of Income
All sources income are eligible

14. Taxable Income Wages / salaries / tips Interest income Dividend income
Unemployment compensation
Social Security benefits (85% in some cases)
Alimony -- maintenance
“Other” income (businesses / royalties / estate income / trust income / pensions / gambling winnings / sale of personal items

15. Dependents / Exemptions
More dependents claimed the less tax paid (WHO?)
Person living with you receiving more than half his/her living expenses from you
Person must be a relative – child, stepchild, adopted child, etc.
Person must be a U.S. citizen of resident of the U.S.
The person may not file a return and claim himself or herself as an exemption
The person’s income may not exceed the amount of his or her exemption
After age 1 all dependents must have a social security number

16. Self-Employed Individuals
Required to claim income over $400 annually (Form 1040)
Many businesses must pay taxes quarterly depending on revenue
Schedule C (Profit or Loss Statement) is attached

17. Tax Planning
Understanding laws and guidelines for filing taxes is important to pay the correct amount each year

18. Financial Planning