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Let ’ s calculate some paychecks!

Learn how to calculate gross and net pay by multiplying regular hours and overtime hours by their respective pay rates. Deduct taxes and other deductions to determine net pay.

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Let ’ s calculate some paychecks!

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  1. Let’s calculate some paychecks! • Math:Reminder: • Gross pay is calculated by multiplying • regular hours times regular pay and adding any overtime • hours multiplied by overtime pay. • Do you remember HOW OVERTIME PAY IS CALCULATED?? • Net pay is determined by subtracting any deductions • from gross pay • --------------------------------------------------------------------------------------------------------

  2. EXAMPLE: • You worked 45 hours last week and pay is $10/hr. • What is your gross pay? • Deductions: 10% federal income tax, • 6.2% social security, 1.45% Medicare • What is your NET PAY? • 40 x $10 = $400 regular pay • 5 x $15 = $75 overtime pay (1 ½ x regular pay) • Gross Pay = $475 • $475 x 10% = $47.50 federal income tax • $475 x 6.2% = $29.45 social security • $475 x 1.45% = $6.89 medicare • Totals Deductions = 47.50 + 29.45 + 6.89 = $83.84 • $475 – 83.84 = $391.16 net pay (a.k.a. take home pay)

  3. See Page 74 in your book: Making Academic Connections: Complete a.- d. with a partner Answers to Page 74, Math Gross Pay = $368 Gross Pay = $478.40 Net pay = $304.47 Net pay = $307.58

  4. Opener • Get signed on to computer • Go to IRS.gov • Who Must File? Handout # • IRS Website: Forms and Publications Tab • Search 1040EZ Instructions- See Page 7 • Also see pages 30-38 for tax tables – how much will you owe?

  5. Double the Salary An employee starting a new job has the option to choose how he is paid for the first twenty days of work. He works five days a week, for four full weeks. Make the best choice for the new employee after comparing the two options. Payment Option 2: The pay will be $0.01 for the first day. Each day the pay will double. So, it will be $0.02 the second day, $0.04 the third day, $0.08 the fourth day, etc. By the end of twenty days, how much money will the employee have made? Payment Option 1: For the first twenty days of work, the new employee will be paid $500 a day.

  6. Double the Salary

  7. Solution Payment Option 1: $500.00 a day * 20 days = $10,000.00 Payment Option 2: This is a better choice for the new employee as he will be making $10,485.75 This is $485.75 more than if he would have chosen Payment Option 1

  8. Chapter 2 Income, Benefits, and Taxes

  9. Chapter 2 Objectives • List and discuss types of earned income and unearned income • Discuss types of self employment, advantages and disadvantages • Describe the types of taxes we pay and the benefits of paying taxes • Read a paycheck, noting required and optional deductions from gross pay • Discuss common federal tax forms Slide 9

  10. What Are the Sources of Earned Income? • A wage is pay for each hour worked. • Minimum wage – lowest rate by state law • Overtime – 1½ times regular rate • A salaryis pay for each month or year worked (no timecards used) • A tipis a gift of money for a service. • A commissionis a set fee or percentage of a sale paid to the salesperson. 2-1 Earned Income and Benefits Slide 10

  11. What Is Self-Employment? • Self-employment is working for yourself. • An entrepreneur is someone who is self-employed and owns a business. • Lifestyle businesses • hobby, intends to keep it small, local, work it themselves • Venture businesses – • intends to grow into corporation and expand 2-1 Earned Income and Benefits Slide 11

  12. Self- EmploymentSmall Business Advantages Disadvantages If business fails, invested money is lost must take risks (risky) hard to get credit initial startup requires long hours and a lot of work money is tight at first • ability to make decisions about running business • can set your own hours • can keep all the Profits: (Profits are the amount left after all expenses are deducted from the revenues or sales of the business).

  13. What Are Employee Benefits? • Benefits are forms of pay other than salary or wages. • Pay without work- vacations, holidays, sick leave • Education-tuition reimbursement • Perks-parking spot, office with view, car, coffee station • Insurance-health, dental, worker’s comp • Retirement plans • Profit-sharing plans • Stock option plans 2-1 Earned Income and Benefits Slide 13

  14. Unearned vs. earned income • Earned • Unearned • Wage/Hourly (minimum wage and overtime) • Salary (no time cards or counting hours) • Tips • Commission (earned on amount of sale) • Interest • Dividends (cash and stock) • Pension (retirement income) • Government Transfer Payments: • (EX: social security benefits, unemployment benefits, workers’ compensation) Slide 14

  15. What Type of Taxes Do You Pay? • Taxes are based on consumption, income, and wealth. • Direct taxes are paid directly to the government. • Examples: income and property taxes • Indirect taxes are charged on goods or services bought by the consumer. • Examples: use, excise, and sales taxes 2-2 Unearned Income and Benefits Slide 15

  16. What Types of Taxes Do You Pay? • Income Tax: is a Progressive tax – the more you earn the more you pay in tax (tax brackets) • Property Tax • paid by those who own real estate. • CONSUMPTION TAXES • Use taxes – paid when using certain good and services provided by government. Ex: toll road • Excise taxes – charged on the purchase of specific goods. Ex: phone, utilities • Sales taxes – added to purchase price of goods

  17. How Do You Benefit from Paying Taxes? • Direct benefits • Examples: roads and highways, social security, police protection, national parks • Indirect benefits • Examples: security from armed forces, public education for citizens, free vaccines 2-2 Unearned Income and Benefits Slide 17

  18. Public Goods are paid for by your taxes • Three unique qualities of public goods: • We all benefit (they raise the overall standard of living in our country) • No one can be excluded from the benefits • People don’t necessarily benefit in proportion to taxes paid Slide 18

  19. Opener: Calculate and reflect the following: • Figure out weekly and yearly earned income if working a job at minimum wage ($7.25/hr.) for 40 hours a week for 1 year. • W = Y = • Next figure out your weekly and yearly income if working a job at $12.00/hr for 40 hours a week for a year. • W= Y = • Now calculate the weekly and yearly income for a job with median starting pay for a Bachelor’s degree ($24/hr) for 40 hours a week for a year. • W = Y = Sum up your thoughts about these results

  20. Communication Skills –see pg. 53 Critical Listening • Evaluate the information you hear. • Consider only important or relevant information. • Make good decisions based on what is accurate and useful. *Remember the example of the used car salesman 2-2 Unearned Income and Benefits Slide 20

  21. Focus On . . . Social Security Benefits • Workers pay into the social security fund through payroll deductions. • A social security number is assigned to each person. • Employers match the payments. • Upon retirement, workers receive a monthly benefit check. 2-2 Unearned Income and Benefits Slide 21

  22. Methods for Paying Employees • Paycheck • Paper check with stub • Least secure payment method because the employee is responsible for handling the paycheck 2. Direct Deposit • Employers directly deposit employee’s paycheck into the authorized employee’s bank account • Payroll Card • A payroll card electronically carries the balance of the employee’s net pay

  23. Where Does My Money Go? • Imagine you have just started your first job! After the first week, you have earned $100. About how much money would you receive in your first paycheck?? • A) $100 • B) $84 • C) $69 • D) $55

  24. Where Does My Money Go? • Up to 31% of an individual’s paycheck is deducted. Your net paycheck many only be about $69! • How do you get from $100 all the way down to $69? • Let’s take a look…

  25. What Are Paycheck Deductions? • Adeductionis money withheld from a paycheck. • Required deduction examples: income tax, social security tax, Medicare tax • Optional deduction examples: health insurance, life insurance, savings plan • Gross pay is total salary or wages. • Net pay is gross pay minus deductions. 2-3 Taxes and Other Deductions Slide 25

  26. What is the Gross Pay? If Miss Patty Paycheck worked at Terrific Tacos for $6.00/hour for 15 hours a week what will her gross pay be? # hours worked x wage = gross pay 15 hours x $6.00/hr = $90.00/week What is Miss Patty Paycheck’s gross pay for a two week pay period? 30 hours x $6.00/hr = $180.00 for 2 weeks

  27. Miss Patty Paycheck’s Paycheck • Miss Patty Paycheck’s paycheck includes: • Gross Pay $180.00 • Payroll Withholdings: • Federal Withholding Tax $14.10 • State Withholding Tax $5.45 • FICA $13.77 • What is her Net Pay? • Gross Pay – Payroll Withholdings = Net Pay $180.00 – ($14.10 + $5.45 + $13.77) = $146.68

  28. Federal Withholding Tax • Federal Withholding Tax • The amount required by law for employers to withhold from earned wages • to pay taxes (Tax Brackets based on income: 10%, 15%, 25%, 28%, 33%, 35%) • The amount of money deducted depends on the amount earned and information provided on the Form W-4 (In this case under 10% was deducted) • Largest deduction withheld from an employee’s gross income

  29. State Withholding Tax • State Withholding Tax (Approx. 3% in this case) • The percentage deducted from an individual’s paycheck to assist in funding government agencies within the state • The percentage deducted depends on the amount of gross pay earned

  30. FICA (Federal Insurance Contribution Act) • FICA • This tax includes two separate taxes: Fed OASDI/EE or Social Security and Fed MED/EE or Medicare • These two taxes can be combined as one line item or itemized separately on a paycheck stub

  31. Social Security • Social Security • Nation’s retirement program, helps provide retirement income for elderly and pays disability benefits • Based upon a percentage (6.2%) of gross income, employer matches the contribution made by the employee

  32. Medicare • Medicare • Nation’s health care program for the elderly and disabled, provides hospital and medical insurance to those who qualify • Based upon a percentage(1.45%) of gross income

  33. Tax Forms – see pages 66-68 • W-2 – reports a worker’s taxable income for the year • 1040EZ– atax return for filers with no dependents or itemized deductions • 1040A – a tax return that allows more options for income and deductions • 1099- – reports interest earned and self-employment income (Ex: Landscaper, PT) 2-3 Taxes and Other Deductions Slide 33

  34. E-Filing – see page 66, 67 • It is a fast and safe way to file a tax return. • You can e-file yourself or hire an authorized e-file provider. • Those who meet adjusted gross income requirements can e-file free. • Refunds are often received much quicker. 2-3 Taxes and Other Deductions Slide 34

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