Income and Deductions

Double time

a rate of pay equal to double the standard rate, sometimes paid for working on holidays or outside normal working hours.

Common pay periods

once per week, every 2 weeks, twice a month, once a month

If you get payed monthly you get...

12 paychecks each year

If you get payed semimonthly you get...

24 paychecks each year

If you get payed biweekly you get...

26 paychecks each year

If you get payed weekly you get...

52 paychecks each year

Federal Insurance Contributions Act (FICA)

A law passed in 1935 imposed on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees after an employee reaches the age of 62, disability benefits for any employee who becomes disabled, children of deceased workers, and a health insurance program after an employee reaches the age of 65. The funds (taxes) to support these programs are provided by workers through deductions withheld from their paychecks. These taxes are shown on your payroll stub as Social Security and Medicare. Currently the social security tax rate is 6.2% of the first $113,700 of your gross earnings and the Medicare rate is 1.45% on all earnings with no maximum.

State income tax

A state tax imposed on the employee's gross earnings

Fair Labor Standards Act

An act of law that establishes minimum wages and requires employer whose firms are involved in interstate (between states) commerce to pay their employees time and one-half for all hours worked in excess of 40 hours per week.

hourly wage (hourly rate)

An employee who is paid by the hour works for an hourly rate Wages paid according to the number of hours worked

Salaried

An employee who is paid yearly or monthly. Salaried employees usually work until the job is done and usually do not receive overtime for any hours over 40 hours per week.

Regressive Taxes

As income rises, the taxes remain the same or decrease Higher income taxpayers are proportionally charged less Examples are Medicare, Social Security, and state sales taxes

Piecework

Compensation based on the number of pieces completed during a pay period

To receive a paycheck, an employee must:

Complete a Form W-4 Employee's Withholding Allowance Certificate

Form W-2

Federal Tax form completed by employers at the end of the year indicating the amount of wages earned and deductions taken. Wage and Tax Statement States the amount of money earned and taxes paid throughout the previous year Used to file income taxes By January 31, an employer should mail a Form W-2 to each employee for the previous year

W-4 form

Federal form used by employers in order to determine the correct amount of federal & state income tax to withhold. Filled out by employee the first day of work.

Taxable Income

Gross pay minus allowable deductions

Gross pay calculation

Hourly Rate × Number of Hours Worked = Gross Pay

Taxes

Imposed on citizens by local, state, and federal governments Used to provide public goods and services Largest amount of taxes a person pays is on his/her income

Federal Income Tax

In 1943 federal income tax withheld from your paycheck came into being with the passage of the Current Tax Payment Act. Employers must submit reports to the Internal Revenue Service (IRS) quarterly (941) and to employees annually (W-2 Wage and Tax Statement). It is calculated based on your marital status and number of dependents.

Criteria used to determine the amount of Federal & State Withholding Tax deducted from a paycheck:

Marital status Number of allowances Number of pay periods Annual salary

Overtime rates

Overtime pay is often figured at one and a half times (×1.5) the regular-time rate and is called time-and-a-half pay.

Overtime/Time and One-Half

Overtime/Time and One-Half

Compensation

Salary, wage, pay, or benefits received for the performance of a service.

Progressive /Graduated Taxes

Take a larger percentage of income from high income taxpayers a tax structure where the greater amount earned; the greater the tax. (Examples: State and Federal taxes)

Net Pay

The total amount of an employee's pay after deductions-gross pay minus deductions

Gross pay or gross wages

The total amount of money that an employee is paid before deductions

Allowances

Used to determine the amount of federal taxes withheld from the paycheck A person may claim a personal allowance if no one else claims the person as a dependent

Straight time

Usually the first 40 hours worked per week. Also known as regular time.

Dependent

a person who relies on the taxpayer for financial support

Commission

a fee paid to an agent or employee for transacting a piece of business or performing a service; especially : a percentage of the money received from a total paid to the agent responsible for the business He gets a commission for each car he sells. *Compensation in the form of a percentage of total sales*

Salary

a fixed amount of money for each time period worked.

Union

a group of people that share something in common in order to accomplish something—i.e. better wages

Medicare

medical insurance for people collecting Social Security 1.45% of gross pay: no maximum

(FICA) Social Security Tax

provides retirement income, disability income, and income to surviving spouse for child care 4.2% of gross pay up to the first $110,100 for 2012.

Dependent, allowances, exemptions

reduction in tax liability due to the responsibility of yourself and other

SUI/SDI

state unemployment (.4250%) & state disability tax (.36%) totals .785% of gross income; maximum $30,900.

Overtime

time worked beyond the regular working day or week. All time worked in excess of straight time weekly (40-hour week) overtime (Example: an employee who works 45 hours in a week is paid for 40 regular hours and 5 overtime hours.)