Income 

What is Income? Income is the money, property, or services an individual or business receives in exchange for labor, services, the sale of goods, or through financial investments. 

  • Earned income: money you receive from working (this includes salaries, wages, tips)

  • Unearned income: money you earn passively or without performing any labor (this includes dividends, investments, interest, content creation, brand partnerships)

  • W-2 vs 1099: If you’re a w-2 employee (most students are if they’re working), you are earning a salary, your taxes will be withheld by your employer, you’ll receive benefits, and have controlled work hours (typically 20 hrs for part time, typically 40 for full time). A 1099 is for an independent contractor (self-employed), you are responsible for setting your own hours, and you pay your own taxes (which includes self-employment tax). You’re not totally guaranteed to earn money this way, as there’s generally lots of fluctuation in salary. Here’s an easy way to put it: W-2s offer stability, 1099s provide flexibility 

    • Solid video on the difference: https://www.youtube.com/watch?v=ohrx-yHESF4

  • Gross vs net pay: when you earn income, you will see gross pay and net pay. What’s the difference? Gross pay is everything you earned in a period of time (generally 2 weeks) from working, without anything being withheld. Net pay is what you get to keep (or take home) after taxes, retirement contributions, and FICA is taken out. 

  • Why do taxes exist? They provide revenue for the government to fund social programs, public goods and services, government operations, and things that will benefit society as a whole! This can include things like education, roads, and healthcare. 

  • How does the IRS work? The Internal Revenue Service is the government agency responsible for collecting taxes and enforcing tax laws. Here’s an article from investopedia that explains what the IRS does and how it will affect you:

Paychecks and tax withholding 

  • Reading a paystub: All paystubs will look slightly different, but the core sections are always similar. This will include things such as employee & pay period information, earnings, taxes withheld, pre/post-tax deductions, and net pay. Why this matters: some people don’t check their YTD totals, how much they’re contributing to retirement, or they don’t even notice if their tax withholding is too high or too low.