Financial Literacy: Examining Future Earnings and Implications for Taxes, Retirement, and Home Buying

Name:             __________________________________________

Due Date:        __________________________________________


Financial Literacy: Examining Future Earnings and
Implications for Taxes, Retirement, and Home Buying

Home buying is often the biggest investment individuals make during their lifetime. As witnessed by the 2008 recession in the United States, it is important to ensure you can afford mortgage payments regardless of what the financial institution is willing to lend. This project will allow you to examine your future earnings and the price of a home you will be able to afford based on this income. You will also compare common (and realistic) mortgage offers. As you work through the questions in this project, write neatly and use complete sentences.

Submission Guidelines: Your project should be typed; however, mathematical calculations may be handwritten (either way, you MUST SHOW ALL MATH WORK). Your facts must be properly cited with a Works Cited page.    Purdue University offers a very good online reference at their Writing Lab's website.

http://owl.english.purdue.edu/owl/resource/747/01/

http://library.ccbcmd.edu/screens/web/MLA_fall2014.pdf

  • 1)Briefly explain your reason for taking class(es) at CCBC. Are you working toward a certificate, degree, or accumulating credits to transfer?

  • 2)After completing coursework at CCBC or a four-year institution, what career to do intend to seek?

  • 3)Based on the career indicated in the previous question, what is a realistic annual salary of this position? It is important that you find the starting salary of this position and not the average salary overall. You may want to conduct a search of actual open positions. Sometimes the salary of the position is listed in the job advertisement. For consistency and practicality, try to find a salary that is practical for earnings in Maryland. Specify where you received this information. Cite this source and submit it with your completed project.

  • 4)There are many types of retirement accounts offered. A common investment account, a 401-K, is tax-deferred. This means that you are not required to pay state or federal taxes on money deposited into a 401-K; you are responsible for tax payments when you begin to withdraw money from the account. We will assume your employer offers a 401-K retirement account and you contribute 10% of your gross earnings. Determine 10% of your gross earnings to calculate your retirement contribution.

  • 5)Subtract your retirement contribution from your salary. Round to the nearest dollar. We will refer to this as your annual taxable income. This is the amount you will use in the upcoming tax payment questions.

  • 6)The following tax table provides Maryland tax rates for a person with a single filing status.
Income
2022 Maryland Tax
$0 - $1,000
2.00% of total income
$1,001 - $2,000
$20 plus 3.00% of the amount over $1,000
$2,001 - $3,000
$50 plus 4.00% of the amount over $2,000
$3,001 - $100,000
$90 plus 4.75% of the amount over $3,000
$100,001 - $125,000
$4,697.50 plus 5.00% of the amount over $100,000
$125,001 - $150,000
$5,947.50 plus 5.25% of the amount over $125,000
$150,001 - $250,000
$7,260.00 plus 5.50% of the amount over $150,000
Over $250,000
$12,760.00 plus 5.75% of the amount of $250,000











  • For example, if your taxable income is $42,000, your estimated Maryland Tax payment rounded to the nearest dollar is given by:
  • Based on your annual taxable income in question five, use this 2022 tax table to calculate the amount of Maryland State income tax you will owe. Round your final answer to the nearest dollar.

  • 7)The following tax table provides Federal tax rates for a person with a single filing status.
Income
2022 Federal Tax
$0 - $10,275
10% of total income
$10,276 - $41,775
$1,027.50 plus 12% of the amount over $10,275
$41,776 - $89,075
$4,807.50 plus 22% of the amount over $41,775
$89,076 - $170,050
$15,213.50 plus 24% of the amount over $89,075
$170,051 - $215,950
$34,647.50 plus 32% of the amount over $170,050
$215,951 - $539,900
$49,335.50 plus 35% of the amount over $215,950
Over $539,900
$162,718 plus 37% of the amount over $539,900

  • For example, if your taxable income is $42,000, your estimated Federal Tax payment rounded to the nearest dollar is given by:

  • Based on your annual taxable income in question five, use this 2022 tax table to calculate the amount of Federal income tax you will owe. Round your final answer to the nearest dollar.

  • 8)Your pay not only deducts federal and state tax, but includes a deduction for Social Security. The 2022 rate is 6.2% of your annual salary as listed in question three. Do not use your taxable income as done in previous questions. If 6.2% of your annual salary is deducted for Social Security, how much is deducted from your salary annually? (Note: The maximum amount any individual will contribute Social Security per year is $9,114. Also, your employer is required to match this amount.)

  • 9)Your pay also includes a deduction for Medicare. The 2022 rate is 1.45% of your annual salary as listed in question three. Do not use your taxable income as done in previous questions. If 1.45% of your earnings are deducted for Medicare, how much is deducted from your salary within one year? (Note: There is not a maximum contribution for Medicare; all earned wages are taxed. Your employer is required to match this amount too.)

  • 10)Before we continue, summarize your previous calculations in a table format. You may use the provide sample as a template.

Item

Dollar Amount

Question 3: Annual Gross Salary


  • Question 4: Annual Retirement Contribution
-
  • =  Question 5:  Annual Taxable Income
=
  • Question 6: Annual Maryland State Tax (based on Question 5)
-
  • Question 7: Annual Federal Tax (based on Question 5)
-
  • Question 8: Annual Social Security Contribution (based on Question 3)
-
  • Question 9: Annual Medicare Contribution (based on Question 3)
-

  • 11)Your take-home pay is also referred to as net income. Deduct your retirement, taxes, and contributions from your gross salary. What is this amount?

  • 12)The amount in question eleven is your annual net income. Divide that amount by twelve to express this as a monthly figure.

  • 13)Some financial advisors recommend that your monthly mortgage payment be no higher than 28% of your monthly net income. What is 28% of your monthly net income, as determined in question twelve? This is the estimated amount you can afford per month for a mortgage.

  • 14)We can calculate how much of a house you can afford using the loan formula. In question thirteen, you determined the monthly mortgage payment you can afford. Using this value for the regular monthly payment to calculate the present value (P), assuming you receive a 30-year mortgage (loan) with an annual interest rate of 3.25% with monthly compounding. (Note: This rate is realistic for a mortgage initiated in November 2021.)

  • 15)We have seen a lot of money taken from us so far! In all honesty, your monthly mortgage payment calculated previously is a lie! Monthly mortgage payments often include property taxes. Assuming you purchase a home in Baltimore County, you are required to pay 1.1% of your home value in property taxes per year. What is 1.1% of your home value, as determined in question fourteen?

  • 16)Using the amount calculated in the question fifteen, what is your monthly property tax payment?

  • 17)Mortgage payments often include property insurance payments too. The bank wants to ensure you are paying for property insurance in the event of a crisis. If you are quoted a price of $900 per year for a property insurance payment, what is your monthly property insurance payment?

  • 18)Add the amounts calculated in questions sixteen and seventeen to your monthly payment in question thirteen. This is your realistic monthly mortgage payment.

  • 19)Research a house that you can afford in Baltimore County.  Cite the house and include this research in your response to the next question.

  • 20)In at least three paragraphs, summarize what you’ve learned while completing this project. Have any decisions regarding your future financial plans changed? Are there financial elements, not addressed within this project that may impact your future financial plans?