You & Your Money Class 1, Part 1 – Your Income

You & Your MoneyClass 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.

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?

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 • Freelance / Contractor Working as a free-lancer or independent contractor is like having your own business. 6

Kinds of Workers • Working for Tips 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. 7

Working Hours and Paid Time Off • Working Hours • Holidays • Sick Days • Vacation

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.

Holidays 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)

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.

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.

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.

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

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

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.

Pay Periods • Weekly • Every 2 Weeks • Twice a Month • Monthly • Daily/End of Project

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

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 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 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. 22

Workers Compensation • Workers Compensation. • A kind of insurance that covers you if you cannot work because of an injury that happened at work. 23

Retirement Savings Contributions • 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 24

Other Benefits • Other Benefits • Room & Board • Meals • Free Apartment 25

You & Your MoneyClass 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

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) 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 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 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 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. 33

Tax Periods • Annual Tax Period Jan 1 – Dec 31 • 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

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.

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.

Tax Refunds • If you had more tax withheld from your income than you owe, you will get a refund after 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.

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

You & Your Money Class 1, Part 1 – Your Income