FINAL ONLINE EXAM Salary & understanding employee Benefits 50 MULTIPLE CHOICE
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understand_your_salary_and_employee_benefits.pptx
Understand your salary and employee benefits
1
Compare different offers
Compare base salary with cost of living
http://www.areavibes.com/cost-of-living-calculator/
Example: compare Los Angeles, CA and Atlanta, GA
Atlanta is 22.3% less expensive than Los Angeles
Median house price: $350,000 (CA)/ $140,000 (GA)
$50,000 in Los Angeles, CA = $38,857 in Atlanta, GA
| Los Angeles, CA | Atlanta, GA | ||
| Overall index | 127 | 99 | -22.3% |
| Groceries | 106 | 106 | 0.3% |
| Housing | 176 | 89 | -49.4% |
| Utilities | 112 | 96 | -14.2% |
| Transportation | 106 | 102 | -3.6% |
| Healthcare | 110 | 101 | -8.2% |
| Goods & Services | 103 | 104 | 0.4% |
2
Example of W-2 Statement
Tax return
“ 1 ” is used for 1040
1040
-gross income (wages, tip, compensation)
W4 determines (with hold) the tax with held from income (estimate) before you actually file your taxes and find out the real number.
Let them with hold more= smaller check, but bigger return
If they take less from your check, you could potentially need to owe them
Social security wages, pay roll benefit, pay for people retired now
3
Understand your W-2 statement?
Wages vs. Social Security wages vs. Medicare wages
Adjustments to YTD gross pay for Federal and State wages
Subtract before-tax deductions
Medical/dental/vision/FSA Health/FSA Dependent care/401k/403b/457 plans
Add
Employer paid taxable fringe benefits (e.g., group term life insurance over $50,000)
Adjustments to YTD gross pay for Social Security and Medicare wages
Cannot subtract contributions to 401k/403b/457 plans
Max. Social Security wage is $113,700
Gross pay will appear in 1
Deductions will not appear in gross pay
4
Tax withheld
Federal income tax withheld
Use W-4 to make adjustments to tax withheld
When you file federal income tax return with 1040:
If Tax>tax withheld, you pay the difference
If Tax<tax withheld, you get a refund
Social Security tax withheld
6.2% of Social Security wages, up to max. wage base of $113,700
If you have two jobs with total Social Security wages over $113,700, you may have paid excess Social Security tax. Claim it as a refundable tax credit on 1040.
Medicare tax withheld
1.45% of Medicare wages (X total income, there is no max income)
State tax withheld
Local tax withheld
2.w2
80,000
Job will tax * 6.2
But if combined= 150,000
So you should file for a return in order to pay the 113,700 *6.2
5
Other types of income
Self-employed income
Use Schedule SE to file income tax return
1099 Series
1099-DIV: dividends and distributions (e.g. stocks)
1099-INT: interest income (e.g. CDs)
1099-MISC: payments to independent contractor, rent, loyalties, prizes
1099-R: distributions from pensions, annuities, retirement plans, IRAs, insurance contracts
DIV Stock distributed dividend, need to include in 1040
INT-
6
Employee benefits
Health insurance
Dental insurance
Vision insurance
Retirement plans
Group term life insurance(first 50,000 free)
Short-term disability insurance
Long-term disability insurance
Long-term care insurance
Flexible Spending Account (FSA)
Legal assistance
Child care/dependent care assistance
Transportation benefits
7
Health insurance
PPO
HMO
Deductibles
Coinsurance
Max. out-of-pocket
No referral needed
More flexible
Higher premium
Lower level of benefits for out-of-network physicians
Co-pay
PCP (primary care physician)
Needs referral to see specialists
Less flexible
Lower premium
No benefit for out-of-network physicians
PPO
coinsurance- if in 70%, out 30%
8
Copay vs. deductible vs. coinsurance
Copay: fixed payments for each visit
Deductible: amount needs to be paid by the patient in a calendar year before insurance starts to kick in
Coinsurance: after copay and deductible, the percentage that needs to be paid by the patient
Out-of-pocket maximum: when the patient’s payment in a calendar year has reached the limit, no coinsurance is required
Copay is fixed amount, ex: 15$ every time
9
Open enrollment
Open enrollment period
Enroll/add participant/change plan
Annually
Special events: marriage, child birth
Pre-existing condition exclusion
Generally pre-existing conditions will be excluded for 6 months
Example
Bill’s health insurance has a $15 copay, $1,000 deductible, 20% coinsurance and $3,500 out-of-pocket maximum (excluding copay).
| Medical bill | Copay (Bill) | Deductible(Bill) | Insurance paid | Coinsurance (Bill) | Out-of-pocket | Bill paid |
| $500 | $15 | $500 | $0 | $0 | $500 | $515 |
| $1,000 | $15 | $500 | $400 | $100 | $1,100 | $615 |
| $2,000 | $15 | $0 | $1,600 | $400 | $1,500 | $415 |
| $30,000 | $15 | $0 | $28,000 | $2,000 | $3,500 | $2,015 |
| $800 | $15 | $0 | $800 | $0 | $3,500 | $15 |
500 needs to be paid out of pocket because insurance will not pay less than deductible
This image
The next line includes the previous lines
Line 4 is 24,000 not 28***
11
COBRA continuation coverage I
Three requirements for eligibility
Plan must be covered by COBRA
≥20 EE (both full time and part time) on 50% of business days
A qualifying event must occur
Termination of employment (no gross misconduct)
Reduction in employment hours
Covered EE is eligible for Medicare
Divorce/legal separation from the covered EE
Death of covered EE
Loss of the dependent status
You must be a qualified beneficiary of the event
Covered EE
Spouse of the covered EE
Dependent child of the covered EE
12
COBRA continuation coverage II
ER can charge the EE up to 102% of premium (2% administration fee)
ER needs to be notified within 30 days
Maximum period of coverage
Termination or reduction of hours: 18 months
Disability: can be extended to 29 months
Second qualifying event: can be extended to 36 months
Other qualifying events: 36 months
Group term life insurance
First $50,000 coverage paid by employer is free to employees
Employees can buy more
If employer pays for more than $50,000 coverage, premiums for the part of coverage over $50,000 is taxable income to the employee
Usually the coverage offered is n X employee’s salary
No cash value
Will terminate once the employee leaves unless it is portable
May be converted to individual policy
May be converted to whole life policy
Retirement plans
Qualified plans
Private corporation: 401(k), profit sharing plan, money purchase plan, ESOP
Government/non-profit: pension, 403(b), 457
Small business/partnership: SEP, SIMPLE IRA
Individual: traditional IRA, Roth IRA
Non-qualified plans
Stock option
Deferred compensation plan
Executive bonus plan
Split-dollar life insurance plan
401(k) 1
EE defers part of the salary and invest in the plan
ER matches EE’s contributions up to a % of EE’s salary
EE and ER’s contributions, and growth in 401k account are not taxable until withdraw/distribution
Example: Jason’s ER matches EE’s contributions up to 3% of salary. Jason’s gross salary is $60,000. If he contributes $2,000 to his 401k account, his ER will contribute $1,800. If he contributes $1,000, his ER will contribute $1,000.
401(k) 2
Contribution limits
EE elective deferral: $17,500 (catch-up $5,500 for age 50+)
Total contribution: 100% of salary or $52,000 ($57,5000 for 50+)
EE elective deferral ER non-elective deferral
ER match contribution Allocation of forfeitures
ER’s contributions are not available to EE immediately
Vesting schedule
| Year of service | Immediate vesting | Cliff vesting | Graded vesting |
| 1 | 100% | 0% | 0% |
| 2 | 100% | 0% | 20% |
| 3 | 100% | 100% | 40% |
| 4 | 100% | 100% | 60% |
| 5 | 100% | 100% | 80% |
| 6 | 100% | 100% | 100% |
401(k) 3
EE chooses investment instruments from mutual funds offered in the plan.
Most popular choice is “target-date fund”, which adjusts asset allocation from aggressive to conservative when EE approaches retirement age.
Fund prospectus should be given to EE before EE sign up for the fund.
EE’s risk tolerance will be evaluated with questionnaires.
EE will receive account statements at least quarterly.
401(k) 4
Early withdrawal from 401(k) (and other tax-advantaged retirement plans) before age 59 1/2 will result in 10% penalty plus income tax unless:
It is a hardship distribution
Immediate and heavy financial needs
It is made to a beneficiary after EE’s death
It is made to EE after qualifying disability
It is made after separation from service after age 55
It is made under qualified domestic relation order (QDRO)
Note: Withdrawal from 401(k) to buy home will result in 10% penalty. Withdrawal from IRA for first-time home-buyer up to $10,000 is free of penalty.
401(k) 5
Loans from 401(k) if it is allowed by plan
Not taxable if:
May borrow up to 50% of vested account up to $50,000 (reduced by outstanding loan)
Must be repaid within 5 years unless it is used to buy principal residence
Required minimum distribution (RMD)
Start date: the later of
April 1 of the calendar year following the year in which your reach age 70 ½
April 1 of the calendar year following the year of retirement
After the first year, distribution must be made by Dec. 31
Minimum distribution amount will be determined by the plan each year.
50% penalty if RMD is not made
401(k) 6
Rollovers from 401(k) to other qualified plan or IRA is not taxable if:
Direct rollover from plan to plan (no distribution)
EE receives a distribution of cash or assets and contributes the distribution to another qualified plan or IRA within 60 days. However, it is subject to 20% mandatory tax withholding.
Termination of employment
Rollover to new employer’s plan (no tax)
Rollover to a traditional IRA (no tax)
Rollover to a Roth IRA (tax due)
401(k) 7
Distribution from 401(k)
Included in your income and taxable
Can be lump-sum or annuity
Leave it in the plan and grow
Rollover to IRA
Beneficiary of 401(k)
If you are married, your spouse is automatically the beneficiary by law.
Waiver must be signed in order to name someone else as the beneficiary.
