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Are You Financially Literate? Chapter 4 Quiz Base salary is what the employee earns, not including incentive pay. Some jobs pay a base salary plus the right or opportunity to earn additional money, such as a performance bonus, overtime, or sales commission. COLA is a periodic cost of living adjustment. That means that in the event consumer prices rise as a result of inflation, the employee’s salary rises too. Students should indicate that Mauricio should look for more opportunities, because two weeks of paid vacation time is the standard for most jobs. D D 10. Students should indicate that all companies are required by law to allow employees time off for civic duties including jury duty. 11. D 12. A 13. F 14. Employee Stock Ownership Plan. 15. Students should indicate that freelance workers do not receive any healthcare benefits from their employers. However, if he chooses to freelance he will be able (required) to obtain medical coverage through the Affordable Care Act or through an spouse’s plan. 16. B 17. Students should indicate that, particularly with dental and vision benefits, insurance covers only a percentage of the total cost of treatment. Even with insurance, the employee is responsible for paying much of the costs. 1. 2. 3. 4. 5. 6. 7. 8. 9. B T A C
Help Henry Decipher the Deductions A. The pay period — typically 26 two week periods. B. Salary, Bonus, Incentive pay, and the 410K retirement plan employer’s matching funds. C. This pay period he earned $2500; Year to date he has earned $15,000 in salary. He earned $500 in incentive pay — it might be commission He got a nice annual bonus of $5000 too.
2. 3. 4. 5. 6. 7.
60
0
47,140 10,300 36,840
5425
8a. 0 9. 5425 10. 5070 11. 0 12. 5070 13a. 355
D. This refers to the employers defined
contribution retirement plan. The employer contributed $320 this pay period. $820 year to date. Net pay is what Henry has left over after all deductions are taken by his employer for benefits and withholdings made for taxes. Net pay is referred to as “take home pay“. Net pay = the check amount. Deductions refer to money that is automatically taken out of his paycheck by his employer. On the paystub deductions include taxes and the employee’s costs of benefits. G. This refers to federal income taxes. The withholding for federal income taxes is determined by the number of allowances Henry claimed on his W-4 which he completed when he was hired. H. This refers to Social Security (OASDI = Old Age Security and Disability Insurance); This is a 6.2% tax withheld from his paycheck as mandated by federal law under FICA. It can also be FICA/SS. The Earning side refers to the matching amount his employer contributed to Henry’s 401K account. The Deduction column shows Henry’s personal contribution which was deducted in pretax dollars. K. $20,500; Year-to-Date; As of 8/14/16; Salary, his annual bonus and incentive pay. L. $8,188.12 PRODUCT PREVIEW E. F. I. No. The 1.45% Medicare deduction is required by federal law under FICA. J. 1. 2. 3. D 15; income; IRS 4. 5. 6. 7. 8. C A C A 9.
Are You Financially Literate? Chapter 5 Quiz
Federal income tax, Social Security tax (FICA), Medicare tax (FICA), the 401k plan contribution, and the health insurance, flexible spending, life insurance.
Students should indicate that Isaac was incorrect, because paycheck stubs contain important information about tax withholdings and paycheck deductions which should be reviewed and filed as a record. Students should indicate that Salman will find an additional deduction for state income tax on his paycheck. 10. A 11. C 12. D 13. B 14. Students should indicate that Karin will pay less taxes because contributions to 401(k) retirement plans and health care insurance are deducted pretax, which reduces her taxable income.
18. A
Payroll Code Decoder
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19. Students should indicate that Chris is not eligible because he was fired, not laid off. 20. F
15. T 16. B 17. D
Fun with FORM 1040EZ Social Security Number: 000-00-0000 1. 47,140
373 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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