Ch 2 Income Sources Flashcards
Overtime
1 1/2 times regular pay for hours above 40 per week
Wages
Employee paid for each hour worked
Minimum wage: the lowest pay rate allowed by law for each hour of work
Salaried workers
Set salary (per month or year) do not keep time cards or count hours worked, flexible work times, 40+ hours/week, no overtime
Tips (“To Insure Prompt Services”)
Money, often a % of total bill, or gift given to a person for performing a service
Commission
Set fee of % of a sale paid to a salesperson, instead of or in addition to salary or wages
Entrepreneur
Person who takes risks of being self-employed and owning a business
Advantages- Owner can make decisions, keeps all earnings or profits
Disadvantages- if business fails, money invested may be lost, work long hours
Profit
Amount left after all costs are deducted from income
Pay without work (employee benefit)
Employee not working will be paid (vacation, paid holidays, sick leave)
Educational reimbursement (employee benefit)
Pay back money spent on education
Perks (employee benefit)
Provide emotional satisfaction or social status Reuther than money
Insurance (employee benefit)
Price paid for health insurance called premium
Retirement plans (employee benefit)
(401 K) allows employees to put aside money for retirement
Profit sharing plans (employee benefit)
When the company does well, employees are paid a share of profits
Stock option plans (employee benefit)
Buy a stock in the company at reduced price
Short term disability
Coverage for up to 2 years
Long term disability
Coverage for longer than 2 years and up to retirement
(FSA) Health flexible spending arrangements (employee benefit)
Allows employees to set aside money to pay for qualified medical expenses
401 k
Allows employees to put aside money that is not subject to federal income tax at the time it is earned; will be taxed later and some employers may match contributions
Networking
Process of making contacts and building relationships with other people
Ethics
Employers expect workers to be honest in their dealings with the company, using sick leave
Unearned income
Money received from sources other than working a job (taxable)
Dividend
money shared w/ stockholders when corporate makes profits
Transfer payments
Money and benefits received from local, state, or federal govts
In kind transfer payments
Vouchers that can be exchanged for goods and services (food stamps etc.) do not receive money directly
In cash transfer payments
Money in the form of a check, debit card, or other direct payment (social security, payments, unemployment)
Taxes
A required payment for the support of a govt, such as income or sales tax paid on earned and unearned income
Costs of taxes
Paying taxes reduces
Disposable income
Less money is left to spend or save
Lower spending may affect the economy
Benefits of taxes
Taxes benefit taxpayers
-S. S. Tax provides retirement benefits to workers
Taxes benefits all residents
-highways, parks, Govt transfer payments
Use taxes
Taxes paid by people who use certain goods or services such as visiting parks
Excise taxes
Charges on the purchase of specific goods such as motor fuel, cigs, alcohol
Luxury taxes
Charged on products not considered essential for a normal standard of living like an expensive car
Social security benefits
Workers pay into the SS fund and receive a statement each yr payments are matched by employers worker receives monthly benefit checks when retired
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
Required deductions
Money withheld from a workers paycheck Gross pay minus taxes and other deductions equals net pay -income tax -social security tax -Medicare tax -workers compensation insurance
Income tax (required deduction)
Withheld according to nome amount and exemptions claimed in Form W-4
Social security tax (required deduction)
Withheld by federal govt
Provides system of old age, survivors, and disability insurance
Requires employer to verify that workers and eligible for employment
Requires workers to complete parts of Form I-9, employment eligibility verification
Medicare tax (required deduction)
Withheld by federal govt
Pays for medical care for retired persons and those who receive SS benefits
Paid by workers and employers
Workers compensation insurance (required deduction)
Insurance plan, pays medical and disability benefits to workers who are injured or contract diseases in the job, laws and programs vary by state, premiums are paid primarily by employers
Optional deductions
Payments for items other than taxes that are subtracted from a workers pay (ex. Health insurance, vision, savings plan, retirement plan)
Federal tax filing
Whether US citizens must file a federal income tax return depends upon: gross income, filing status, age, whether you are a dependent
From W-2
Used to report the taxable income a worker received during a calendar yr
Form 1040EZ
Designed for use in filing income taxes by single and joint filers with no dependents
Form 1040A
2 page form designed for use in filing income taxes
Allows more options for income and deductions to be entered
