Personal Finance Test - Income & Deductions
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 4.2% of the first $110,100 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.
Overtime
All time worked in excess of straight time.
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.
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.
Piecework
Compensation based on the number of pieces completed during a pay period.
Commission
Compensation in the form of a percentage of total sales.
How to calculate DOUBLE TIME WAGES?
DOUBLE TIME RATE x SUNDAY/HOLIDAY HOURS
Biweekly
Every 2 weeks; 26 paychecks a year
W-2 Form
Federal Tax form completed by employers at the end of the year indicating the amount of wages earned and deductions taken.
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
How to calculate the OVERTIME RATE?
HOURLY RATE x 1.5
How to calculate the DOUBLE TIME RATE?
HOURLY RATE x 2.0
Monthly
Once a month; 12 paychecks a year
Overtime/Time and One-Half
One and one-half times an employee's hourly wages
Compensation
Salary, wage, pay, or benefits received for the performance of a service.
Net Pay
The total amount of an employee's pay after deductions-gross pay minus deductions
Gross/Pay Earnings
The total amount of an employee's pay before deductions.
Semimonthly
Twice a month; 24 paychecks a year
Double Time
Twice an employee's hourly rate
Straight Time
Usually the first 40 hours worked per week (also called regular time)
Graduated / Progressive Tax
a tax structure where the greater amount earned; the greater the tax. (Examples: State and Federal taxes)
Regressive Tax
as income rises, the taxes remain the same or decrease. (Examples: Medicare, Social Security, state sales tax).
Union
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
What criteria is used to determine the amount of Federal & State Withholding Tax deducted from a paycheck?
o Marital status o Number of allowances o Number of pay periods o Annual salary
(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 others.
SUI/SDI
state unemployment (.4250%) & state disability tax (.20%) totals .625% of gross income; maximum $30,300.
Weekly
52 pay periods in a year
Common Pay Periods
How often you are being payed (monthly, weekly, semimonthly etc.)
Federal Income Taxes
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.
How to calculate OVERTIME WAGES?
OVERTIME HOURS x OVERTIME RATE
How to calculate the REGULAR WAGES?
REGULAR HOURS x HOURLY RATE
Hourly Wage (Hourly Rate)
Wages paid according to the number of hours worked.
EX. Pay Periods Assume you are paid $24,960 per year. The following table shows what you would earn for each of the common pay periods.
Weekly $24,960 / 52 = $480 Biweekly $24,960 / 26 = $960 Semimonthly $24,960 / 24 = $1,0404 Monthly $24,960 / 12 = $2,080