Income - Earned Income
This is where the clients' salaries and self employment incomes can be entered. For each individual the program allows the entry for the total Salary and Wages and total Self Employment separately. The income fields cannot be removed and new incomes cannot be created. For individuals that get W2 incomes from multiple employers, combine both into that client's Salary and Wages field.
Salary and Wages: This is income the individual received from an employer. Moneytree Plan will calculate FICA taxes for Social Security and Medicare at half the rate it does for Self Employment since the employer covers half of the bill. If contributions were entered as a percent of salary in the Assets tab of the Assets section, then the contributions will be based off the Salary and Wages.
Self Employment: This is the income the individual reports as earnings separate from any employer. SECA taxes going towards Social Security and Medicare will be lumped in with their overall FICA taxes on reports. Self Employment Social Security and Medicare taxes are twice as high as they are for Salary and Wages, but half of the taxes will be reported as a tax deduction. Contributions to retirement plans as a percentage of salary entered in the Assets tab of the Assets section do NOT look at Self Employment.
NOTE: Aspire reports use an effective tax rate that does not account for Social Security and Medicare taxes, so there is ultimately no difference between Self Employment and Salary income in Aspire projections. The Current Year Income Tax report (audit trail D3) and Current Year Cash Flow (audit trail A15) in Aspire take a closer look at taxes and will show different Social Security and Medicare taxes, unlike the other reports.
Prosper takes detailed tax calculations every year for its projections, making it much more important to differentiate the types of earned income.
Input Details
The inputs for all the income types is identical.
Enter Amount Details: Check this box to access additional fields for the annual amount to change income information for specific reports and calculations. It is typically recommended to leave this box unchecked, except in very specific circumstances.
Annual Amount: Enter the total income the client is expected to get in today's dollars for the selected type of income. If the Enter Amount Details box is unchecked, Moneytree Plan will use the entered amount for all reports and calculations involving earned income. This income will stop by the client's retirement by default. If the Enter Amount Details box is checked, four additional fields will appear to specify income across different categories:
Tax Report: This is the amount of income that the clients will report for taxes. Moneytree Plan will automatically deduct contributions to qualified plans accordingly. Be cautious when making changes, since lowering the Tax Report amount will also lower the client's Social Security and Medicare taxes.
Cash Flow: Use this field to specify a potentially different gross income the clients will use for cash flow. Income taxes are reported as a cash flow expense, so this amount should not be lowered to an after-tax value. One example clients may have Cash Flow amount different from the Tax Report amount is if they have some payroll deduction that is not tax deductible, and that you do not wish to include in their Personal Expenses.
Disability: The amount from this field will only be used for the Disability reports. This field represents the amount the client will receive in the event that their spouse is disabled. This field does NOT represent income the client will receive in the event they themselves are disabled. That income should be entered in the Disability tab of the Insurance section. This field can be useful if a client expects to work more to makeup for the lost income from their disabled spouse, or if the intend to work less to help take care of their spouse and/or the family.
Survivor: The amount from this field will only be used for the Survivor and Life Insurance reports. This field represents the amount the client will receive in the event that their spouse passes away. Some may use this field if a client expects to work more to makeup for the lost income from their deceased spouse, or if the need to work less to take care of their family.
Increase Rate: Enter the rate at which the client's income is expected to increase annually, typically for inflation.
Future Changes
Use the Future Changes if the client expects to change how much they make or the rate their income increases for a certain type of income. Changes to the amount of earned income should be entered in today's dollars.
NOTE: When using Future Changes, any change will continue until the individual's life expectancy or until there is another change. Income will no longer stop by retirement. To stop income, another entry is required to specify the earner's age when the income stops and entering $0 for the annual amount(s).
TIP: Does a client wish to work part time during their final years of retirement? This can be done by using Future Changes. Create an entry, enter the earner's age they want to start part time work, and the amount they expect to earn. Just be sure to create another entry for the age they will completely stop working and enter $0 for the annual amount(s).