Chapter 2: Income, Benefits and Taxes (2-2: Unearned Income & Payments) Flashcards
Money received from sources other than working.
Unearned Income
Money earned on savings accounts and other funds. The cost of borrowing money, or price paid or charged to borrow money.
Interest
A portion of a corporation’s profits distributed to stockholders.
Dividends
Money and benefits received from local, state or federal governments.
Transfer payments
Examples of transfer payments include:
Medicaid (Low-Income)
Social Security (Retirees)
Medicare (Retirees)
Unemployment (laid off workers)
Taxes based on the use of goods and services provided by the government.
Uses Taxes
Examples of Uses Taxes include:
State Park Fee
Bridge Toll
Gas Tax – pays for road & highway repairs.
Taxes charged on the purchase of specific goods and services.
Excise Taxes
Examples of Excise Taxes include:
Gasoline Cigarettes Alcohol Phone Utilities
Taxes levied on consumer purchases of goods and services.
Sales Tax
Wealth taxes based on the assessed value of owned real estate.
Property Taxes
Government provided goods and services paid for by taxes.
Public Goods
Examples of Public Goods include:
National Defense
Public Education
Police Protection
Parks & Roads
Stock that pays variable dividends and gives owners (stockholders) voting rights
Common Stock
A debt instrument issued by a corporation or government
Bond
A strategy to earn more on your money than the rate of inflation
Investing
Total salary or wages earned during the pay period
Gross Pay
The amount of your paycheck after deductions
Net Pay
A person claimed as a dependant on a tax form
Exemption
A person who depends on you for more than half of his or her support
Dependent
A withholding tax to provide old-age, survivors and disability insurance
Social Security Tax
A tax that pays for medical care for retired persons
Medicare Tax
A form used to report taxable income a worker received during the calendar year.
Form W-2
The short tax return form designed for single and joint filers with no dependents or itemized deductions.
Form 1040EZ
A form used to report income and deductions claimed
Tax Return
A fast, safe way to file a federal tax return electronically
E-filing
Types of Earned Income include:
Salaries and wages Tips Commissions Bonuses Professional fees
Types of Unearned Income include:
Interest Dividends Capital gains Gambling winnings Alimony Social security benefits Pensions Annuities Unemployment compensation
Types of Variable Income include:
Business profits
Rents
Royalties
Farm income
Medicaid is a type of benefit paid to
Low-income families
Supplemental security income (SSI) is a type of benefit paid to:
Low-income elderly and disabled individuals
Social security is a type of benefit paid to
Retirees, disabled workers, dependents
Medicare is a type of benefit paid to
Retired people with social security
Unemployment compensation is a type of benefit paid to
Laid-off workers
Workers’ compensation is a type of benefit paid to
Workers injured on the job
The amount of money left from revenue after a business pays all expenses.
Profit
Money available to spend or save after taxes and expenses have been paid.
Disposable Income
Capital gains are
Unearned Income
Commission is
Earned Income
Dividends are
Unearned Income
Interest is
Unearned Income
Salary is
Earned Income
Social Security is
Unearned Income
Tips are
Earned Income
Unemployment is
Unearned Income
Wages are
Earned Income
Advantages of owning a small business are
Choosing what to sell, making your own hours, keeping the profits after expenses are paid
Disadvantages of owning a small business are
Taking on financial risk, long hours, years of not making a profit, finding money to start the business.
How do cash dividends differ from stock dividends?
Cash dividends are when a stock holder receives cash when a company pays out dividends, stock dividends are when the company pays dividends in the form of stock. Stock dividends are a reinvestment in the company.
How can raising taxes affect the economy?
Raising taxes makes a person have less disposable income. With less disposable income they have less money to spend on goods and services. When they don’t spend money on goods and services business suffer by making less of a profit. If a company isn’t making money they often don’t need workers. When they don’t have a need for workers people lose their jobs and don’t have money to spend on goods and services. It is a cycle that will continue.
Explain the difference between direct and indirect taxes? Provide examples
Direct taxes benefit you directly. Some examples are when you receive social security or medicare at retirement, you also benefit directly from police protection and national defense funded by taxes. Indirect benefits are when you benefit indirectly from paying taxes. An examples is when you pay property taxes to pay for public education. You may not have a student in the school district but if the school provides a good education people may want to move into the town and it will increase property value.
