Understanding Pay and Benefits Federal Income Tax PAY, BENEFITS, AND FEDERAL INCOME TAX.
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Transcript of Understanding Pay and Benefits Federal Income Tax PAY, BENEFITS, AND FEDERAL INCOME TAX.
Understanding Pay and Benefits
Federal Income Tax
PAY, BENEFITS, AND FEDERAL INCOME TAX
Week 4 - Pay, Benefit, & Fed Income Tax
Understanding Pay and Benefits
GOALSCompute payroll deductions and net pay.
Identify optional and required employee benefits.
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Week 4 - Pay, Benefit, & Fed Income Tax
Gross Pay, Deductions, and Net PayGross pay is the total amount you earn
before any deductions are subtracted.
Amounts subtracted from your gross pay are called deductions.
When all deductions are taken out of your gross pay, the amount left is your net pay.
Gross Pay – Deductions = Net Pay
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Week 4 - Pay, Benefit, & Fed Income Tax
Gross Pay Calculation
1. Regular Pay = Regular Hours x Regular Rate
2. Overtime Rate = Regular Rate x 1.5
3. Overtime Pay = Overtime Hours x Overtime Rate
4. Gross Pay = Regular Pay + Overtime Pay
Regular Pay + Overtime Pay = Gross Pay
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Example of Gross PayCalculations for Hourly Employee
Type of Pay Hours Rate Amount
Regular pay 40 × $8.00 per hour = $320.00
Overtime pay 4 × $12.00 per hour = 48.00
Gross pay $368.00
Week 4 - Pay, Benefit, & Fed Income TaxSLIDE 5
Week 4 - Pay, Benefit, & Fed Income Tax
SalarySalary may be stated as an annual amount.
The annual amount is divided into equal amounts to be paid each pay period.
Common pay periodsMonthlyTwice a monthEvery two weeksWeekly
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Example of Gross PayCalculations for Salaried Employee
Annual Salary
÷Pay Period
per Year=
Gross Pay per Paycheck
Monthly $24,000 ÷ 12 = $2,000
Twice a month $24,000 ÷ 24 = $1,000
Every two weeks $24,000 ÷ 26 = $923.08
Weekly $24,000 ÷ 52 = $461.54
Week 4 - Pay, Benefit, & Fed Income TaxSLIDE 7
Week 4 - Pay, Benefit, & Fed Income Tax
DeductionsAmounts subtracted from your gross pay
are called deductions.
Some deductions, such as Social Security tax and Federal Income tax, are required by law.
Other deductions are optional.
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Week 4 - Pay, Benefit, & Fed Income Tax
Net PayWhen all deductions are taken out of your
gross pay, the amount left is your net pay.
Amount of your paycheck
“Take-home pay”
Amount you can actually spend as you wish
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Week 4 - Pay, Benefit, & Fed Income Tax
Benefits and Incentives
Profit sharingPaid vacations and
holidaysEmployee servicesChild careSick payLeaves of absence
InsuranceBonuses and stock
optionsPension and
savings plansTravel expenses
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Week 4 - Pay, Benefit, & Fed Income Tax
Profit SharingProfit sharing is a plan that allows employees
to receive a portion of the company’s profits at the end of the corporate year.
The more profits the company makes, the more the company has to share with employees.
Profit sharing is considered incentive pay—money offered to encourage employees to strive for higher levels of performance.
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Week 4 - Pay, Benefit, & Fed Income Tax
Paid VacationMost businesses provide full-time
employees with a set amount of paid vacation time.
While you are on vacation, you are paid as usual.
The amount of vacation time often varies with years of service.
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Week 4 - Pay, Benefit, & Fed Income Tax
Paid HolidaysPaid holidays typically include: Christmas,
Thanksgiving, Fourth of July, Labor Day, and Memorial Day.
Other holidays that many companies consider paid holidays are New Year’s Day, Veterans Day, Martin Luther King Day, and Presidents Day.
An employee required to work on a holiday is usually paid double or more than double the regular hourly rate of pay.
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Week 4 - Pay, Benefit, & Fed Income Tax
Employee ServicesEmployee services are the extras that
companies offer in order to improve employee morale and working conditions.
Examples include:Employee discountsSocial and recreational programsFree parkingTuition reimbursement for college coursesWellness programsCounseling for employee problems
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Week 4 - Pay, Benefit, & Fed Income Tax
Child CareOnsite child-care facilities
Coverage of child-care expenses as a part of employee benefit packages
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Week 4 - Pay, Benefit, & Fed Income Tax
Sick PayMany businesses also provide an
allowance of days each year for illness, with pay as usual.
It is customary to receive three to ten days a year as “sick days” without deductions from pay.
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Week 4 - Pay, Benefit, & Fed Income Tax
Leaves of AbsenceSome employers allow employees to
temporarily leave their jobs (without pay) and return to their jobs at a later time.
There are often restrictions on the reason for a leave, such as having children or completing education.Disadvantage: UnpaidAdvantage: Job security
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Week 4 - Pay, Benefit, & Fed Income Tax
Personal DaysSome employers allow personal days
(absences for personal reasons) so that employees can attend to important matters without calling in “sick” when they aren’t sick.
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Week 4 - Pay, Benefit, & Fed Income Tax
InsuranceMost large companies provide group
insurance plans for all employees.A few plans are paid for almost entirely by the
employer, as a part of employee compensation. Most plans require that employees pay for part
of their own coverage, as well as to cover dependents.
Common types of insurance plansGroup health insuranceGroup life insuranceGroup dental insuranceGroup vision insurance
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Week 4 - Pay, Benefit, & Fed Income Tax
Bonuses and Stock OptionsBonuses are incentive pay based on
quality of work done, years of service, or company sales or profits.
Stock options give employees the right to buy a set number of shares of the company’s stock at a fixed price.
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Week 4 - Pay, Benefit, & Fed Income Tax
Pension and Savings PlansPension plans are funded by the employer.
Retired employees receive a monthly check.
Employees become vested (entitled to the full retirement account) after a specified period of time, such as five years.
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Week 4 - Pay, Benefit, & Fed Income Tax
Employer-Sponsored Retirement Savings Plans
Common plans401(k) for private employers403(b) for government employers
Employees put money in these accounts.
The employer may also (but is not required to) contribute money to the employee’s account.
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Week 4 - Pay, Benefit, & Fed Income Tax
Travel ExpensesCompany car
Mileage allowance
Daily allowance to cover hotel, meals, and other travel expenses
Expense reports and receipts
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Week 4 - Pay, Benefit, & Fed Income Tax
Evaluating Employee BenefitsBenefits generally are not taxable to
employees (except bonuses and other benefits paid in cash), yet they provide valuable coverage and advantages.
Generally, large companies provide more extensive optional benefits than do small companies.
In recent years, employee benefits have been expanded to meet the needs of different life situations.
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Our Tax System
Filing Tax Returns
FEDERAL INCOME TAX
Week 4 - Pay, Benefit, & Fed Income Tax
Our Tax System
GOALSExplain the purpose of taxes and describe
the different types of taxes.
Describe the U.S. tax system and explain how it works.
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Week 4 - Pay, Benefit, & Fed Income Tax
Purpose of TaxesIn a free enterprise system such as ours,
the government collects money from citizens and businesses in the form of taxes.
These incoming funds to the government are called revenue.
The government spends the revenues received according to priorities set by Congress.
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Week 4 - Pay, Benefit, & Fed Income Tax
Progressive TaxesProgressive taxes take a larger share of
income as the amount of income grows.
Federal income taxes are progressive.
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Week 4 - Pay, Benefit, & Fed Income Tax
Components of the Tax SystemThe IRS
The power to tax
Paying your fair shareTax rates apply to income ranges, or tax
brackets.Our income tax system is based on voluntary
compliance, which means that all citizens are expected to prepare and file tax returns of their own accord without force.
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Week 4 - Pay, Benefit, & Fed Income Tax
Components of the Tax SystemFailure to pay taxes
Failure to do so can result in a penalty: interest charges on the taxes owed plus a possible fine.
Willful failure to pay taxes is called tax evasion, which is a serious crime punishable by a fine, imprisonment, or both.
(continued)
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Week 4 - Pay, Benefit, & Fed Income Tax
An IRS AuditEvery year, the IRS calls millions of
taxpayers for an audit, which is an examination of their tax returns.
Types of auditsOffice auditCorrespondence auditField audit
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Week 4 - Pay, Benefit, & Fed Income Tax
Filing Tax Returns
GOALSDefine basic tax terminology.
Prepare tax forms 1040EZ and 1040A.
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Week 4 - Pay, Benefit, & Fed Income Tax
Filing StatusFiling status describes your tax-filing
group.
You must mark one of the following as your filing status on your tax form:Single person (not married)Married person filing a joint returnMarried person filing a separate return“Head of household”Qualifying widow(er)
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Week 4 - Pay, Benefit, & Fed Income Tax
ExemptionsAn exemption is an amount you may
subtract from your income for each person who depends on your income to live.
Each exemption reduces your taxable income and thus your total tax.
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Week 4 - Pay, Benefit, & Fed Income Tax
Exemptions—Who QualifiesYourself, unless someone else claims you
on their return
Your spouse, if you are filing jointly
Your dependentsA dependent is a person who lives with you
and for whom you pay more than half his or her living expenses.
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Week 4 - Pay, Benefit, & Fed Income Tax
Gross IncomeGross income is all the taxable income
you receive.
Earned income refers to money you earned from working.
Unearned income refers to money you received from passive activity (other than working).
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Week 4 - Pay, Benefit, & Fed Income Tax
Common Types of IncomeWages, salaries, and tipsInterest incomeDividend incomeUnemployment compensationSocial security benefitsChild supportAlimony
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Week 4 - Pay, Benefit, & Fed Income Tax
Adjusted Gross IncomeThe law allows you to subtract some types of
spending from gross income.You can “adjust” your income by subtracting such
things as contributions to individual retirement accounts, student loan interest, and tuition and fees.
These adjustments are subtracted from gross income to determine adjusted gross income. Adjustments reduce income that is subject to tax. Note that these adjustments are not available on
Form 1040EZ.
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Week 4 - Pay, Benefit, & Fed Income Tax
Adjusted Gross Income
Gross income
– Adjustments
Adjusted gross income
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Week 4 - Pay, Benefit, & Fed Income Tax
Taxable IncomeTaxable income is the income on which
you will pay tax.
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Week 4 - Pay, Benefit, & Fed Income Tax
Taxable Income
Gross income
– Adjustments
Adjusted gross income
– Deductions
– Exemptions
Taxable income
(continued)
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DeductionsItemize deductions
Standard deduction
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Week 4 - Pay, Benefit, & Fed Income Tax
Itemize DeductionsItemize deductions are expenses you can
subtract from adjusted gross income to determine your taxable income.
Examples include: Medical and dental expenses beyond a specified
percentage of your income State and local income taxes Property taxes Home mortgage interest Gifts to charity Losses from theft or property damage Moving expenses
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Week 4 - Pay, Benefit, & Fed Income Tax
Standard DeductionIf you do not have many deductions, your
tax may be less if you take the standard deduction.
The standard deduction is a stated amount that you may subtract from adjusted gross income instead of itemizing your deductions.
This amount changes each year.
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Week 4 - Pay, Benefit, & Fed Income Tax
Tax CreditsA tax credit is an amount subtracted directly
from the tax owed. It is different from a deduction.
A deduction is subtracted from adjusted gross income. It reduces your tax by reducing the amount of income on
which the tax is figured.
A tax credit reduces the tax itself.
The government allows tax credits for certain education expenses, child-care expenses, and other reasons from time to time.
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Week 4 - Pay, Benefit, & Fed Income Tax
Preparing Your Income Tax ReturnWho must file?When to file?Which form to use?Where to begin?Filing electronicallyTax preparation software
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Week 4 - Pay, Benefit, & Fed Income Tax
Form 1040EZStep 1: Name, address, and Social
Security numberStep 2: Report incomeStep 3: Compute taxStep 4: Refund or amount owedStep 5: Sign the return
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Week 4 - Pay, Benefit, & Fed Income Tax
Form 1040AStep 1: Name and addressStep 2: Filing statusStep 3: ExemptionsStep 4: IncomeStep 5: Adjusted gross incomeStep 6: Taxable incomeStep 7: Tax, credits, and paymentsStep 8: Refund or amount owedStep 9: Signature
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