15 Income Earning and Reporting

15 demonstrate knowledge of income earning and reporting

15a Personal Choices Impact Earnings

Personal choices about investment in oneself as human capital through education, training, and skill development impact earnings.

What is human capital?

Knowledge and skills a person possesses

How Can Individuals Invest in Their Own Human Capital?

People invest in their own human capital when they gain knowledge and skills through education, training, and experience

How Does Human Capital Affect Income?

People with more education and skills tend to earn higher incomes than uneducated and unskilled workers.

15b Differentiating Among Sources of Income

People can receive income from a variety of sources

What are some of the ways to earn income?Earned: Salary Hourly wages Overtime Tips Commissions Bonuses Piece rate

Unearned: Interest Return on

investment Inheritance gifts

15c Calculate Net Pay

Net pay is what remains after voluntary and required deductions are subtracted from gross pay

What is gross pay?

Total money earned before deductions

Some deductions are required Some may be voluntary

What is net pay?What are common deductions from gross pay that affect net pay?

Net pay results when deductions such as the following are subtracted from gross pay:

Federal Insurance Contributions Act (FICA) contributions

State and Federal Taxes Insurance Savings Retirement Medical reimbursement (pre-tax deduction) Child care reimbursement

15d Employee Benefits & Incentives

Employees may have a variety of benefits and incentives to consider

What are employee benefits?

Benefits are part of an employee’s compensation, over and above wages or salary. They add to the financial value of the job

Examples of benefits:› Matching contributions to tax-sheltered annuities, such as

401(k) and 403(b) retirment savings plans› Savings plans› Parking› Health insurance plans (medical, dental)› Child care› Elder care› Paid vacation› Paid sick days› Profit sharing

What are employee incentives?

Incentives are offered as motivation for employees to perform well and may include:› Bonuses› Profit sharing› Free travel or merchandise

15e W-4 form

The information a worker provides on the W-4 form impacts federal tax deductions and personal income

Why is it important for the W-4 form to be completed accurately?

The information provided on the W-4 form determines how much is withheld from one’s gross pay.