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Tax for Teens. Vocab/Definitions WS. Did You Know?. Average annual income for teens: $3,095.00 40% of teens currently save regularly Nearly 1/3 all students work 40+ hours per week in summer ¼ work 35+ hours per week during the school year Average teen saves $1000 of summer wages.

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tax for teens

Tax for Teens

Vocab/Definitions WS

did you know
Did You Know?
  • Average annual income for teens: $3,095.00
  • 40% of teens currently save regularly
  • Nearly 1/3 all students work 40+ hours per week in summer
  • ¼ work 35+ hours per week during the school year
  • Average teen saves $1000 of summer wages

FYI: Amish pay tax on real estate and personal property and income tax on any earnings. They do not pay school tax, social security or Medicare tax.

form i 9 employment eligibility verification

Proves you aren’t an illegal alien

  • Penalty if not one on file for each employee
  • Keep 3 years after employee is gone
  • Acceptable documents used to prove citizenship:
    • Passport
    • Voter’s registration
    • School or military ID
    • Driver’s license
    • Social security card
Form I-9 – Employment Eligibility Verification
so what is a w 4

New employees fill out this form

Tells employers how much federal income tax to withhold from paycheck

So What Is A W-4?
filling out the w 4 correctly

If don’t fill out correctly:

    • Owe money when taxes are due April 15
    • Could be taking out too much tax from paycheck
    • Lose potential interest
Filling Out the W-4 Correctly
a few key terms you need to know

WITHHOLDING:

    • Represents money that an employer deducts from paycheck to pay all or part of employee’s taxes
  • However, depending how much make for the year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying
A Few Key Terms You Need To Know
can you put exempt on your w4

You can put “Exempt” if:

    • Weren’t required to pay federal income tax last year
    • Don’t expect to this year either (made less than $6100 {std deduction - base amount of income that is not taxed})
    • If under 19 or a full-time student (or until 24 yr/full time)
    • CAN parent(s) claim you as a dependent?
        • DEPENDENT: A person who relies on another taxpayer for at least half of his or her support (food, shelter, clothing, education, etc.)
        • If divorced
          • Custodial parent (has child 1 more day than other)
          • One makes more money
Can you put Exempt on your W4?

Mind map

examples

If you live with parents and under 19, you can be claimed as a dependent regardless of how much you make.

  • While your parents may not choose to claim you, test is whether they CAN.
    • If they can claim you and you are under 19, and expect to make under $6100 in the calendar year, you will likely NOT have to pay federal income tax.
      • Note: If you are at least 19 but under 24, parents can still claim you as a dependent as long as you are a FULL-TIME Student!
Examples:

In-Class Am I Exempt WS

Am I Exempt WS

i don t qualify for exempt status now what

Need to fill out the personal allowances worksheet on the W-4 form!

  • The more exemptions (allowances) you claim, the _____ tax withheld from paycheck
    • Claim “____” will result in the largest amount of tax to be withheld

See pg 347-48 acct text

I don’t qualify for Exempt status – now what?

TAX TABLE

Fill out W4 with workbook

what if i make a mistake

Claim exempt and make more than $6100?

    • More than likely have to owe taxes!
  • If you don’t claim exempt (0 allowances)
    • More than likely break even or receive a refund!
What if I Make a Mistake?

W4 ws

where s all the money i earned

Payroll Taxes

    • Federal and State
    • Collected from employers and employees to provide retirement benefits (social security, Medicare)
      • This amount is paid regardless of income earned
      • Will NOT get back until retirement
Where’s All The Money I Earned?
the paycheck stub

Miscellaneous Information

  • Gross Income
  • Deductions
    • May get refund on Fed and State
    • No refund on SS or Medicare
  • Net Income
The Paycheck Stub
the w 2

Must receive these by January 31st from your employer

  • Summarizes
    • How much you made during the year (Earned Income)
    • How much you paid in for taxes
  • Use to help fill out tax return
  • If error, see employer to fix
The W-2
w 2 continued

W-2 – will have 3 copies

    • Your records
    • Attach to state tax return
    • Attach to federal tax return
W-2 continued
1099 int

Receive this form from your bank

  • Shows interest earned for year
    • Remember: Interest is considered “unearned income” and may have to pay tax on it!
1099-INT
slide24

Am I Required to File a Tax Return?

http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

am i required to file a tax return as a dependent

25

Am I Required to File a Tax Return (as a dependent)?
  • Due April 15!
  • Required? Depends…

*Your income for the year

*If parents can claim you, you must file if:

1.Your unearned income was over $1000

2.Your earned income was over $6100

OR if…

3.

am i required to file a tax return
Am I Required to File a Tax Return?

26

  • John Garcia, 18, earned $4200 working at the local library and was paid $210 in interest from his bank savings account.
am i required to file a tax return1
Am I Required to File a Tax Return?

27

http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

  • Jill Williams, 18, had two jobs during the past year. She worked as a waitress at La Fogata, where she earned $6800 and as a summer counselor, where she earned $2400. Jill also made $375 in interest.

Do I have to file return WS

In-Class Do I Have to File Return WS

humm should i file

Civic Duty to File

  • Voluntary Compliance
    • Government relies on people to:
      • Report their income
      • Calculate tax liability correctly
      • File on time
Humm, should I file?
to pay or not to pay

Why pay?

    • Government uses money to fund services
      • Ex: School
  • Penalty
    • Fine up to $25,000
    • Imprisonment up to 1 year
    • Or Both!
To Pay or Not to Pay…

1-6 Review

Do I have to file return QUIZ

forms

1040EZ – simplest to file

  • 1040 – most lengthy to file
Forms?
how do i file the 1040ez1

Must meet requirements to use EZ:

    • Single
    • Claim no dependents
    • Taxable income < $100,000
    • No income other than wages, salaries, and tips (shown on W-2)
    • Up to $1500 taxable interest (shown on 1099INT)
How Do I File the 1040EZ?
filling out the 1040ez

Terminology:

    • Adjusted Gross Income (AGI)
      • Sum of wages and taxable interest
    • Deduction
      • Amount tax payers may subtract from their AGI before tax is determined (reduction in income)
    • Taxable Income
      • Part of income you must pay taxes on
    • Credit
      • Direct reduction of taxed owed
Filling out the 1040EZ

Fill out 1040EZ wb

sending in the return

Photocopy the EZ form for record

  • Mail in W-2 & 1099 INT with return
  • If owe
    • payable to “United States Treasury”
Sending in the Return

Keep copies at least 5 years!

don t want to pay what could you have done differently

If you don’t choose to pay, IRS will add 5% to what you owe for each month you don’t pay!

  • W-2
    • Claimed “0” rather than exempt so take taxes out
  • Watch out for scam artists!
Don’t Want to Pay? What could you have done differently?

1040 EZ Prob WS

other ways for government to collect money

Income tax not only source

Social Insurance taxes and contributions (retirement and unemployment)

Excise tax (tax on gas, cigarettes, and alcohol)

Estate and gift tax

Customs duties (imports)

Other miscellaneous receipts

Other Ways for Government to Collect Money
where does your money go
Where Does Your Money GO?

Chap 7 review

1040 EZ quiz

file 1040 form
File 1040 Form?
  • File this form if:
    • Received dividends or capital gains from an investment (1099 DIV)
    • Received tips of $20 or more in any month that you didn’t report
    • Box 8 of W-2 shows tips allocated
    • Earned income from your own business
    • Won money in lottery or raffle
    • Received non-employee compensation
    • Social Security pension
    • Farm
filing status and exemptions

Filing status affects amount tax paid

  • Exemptions
    • $3800 - each exemption may be subtracted from adjusted gross income
    • Exemptions help to reduce taxable income
  • But you won’t qualify bc parents can claim you
Filing Status and Exemptions
what is income

Income: “all income from whatever source derived”

    • Earned Income
    • Unearned Income
    • Miscellaneous Income
What is Income?
slide44

Use to report

“other income”

  • Ex:
  • Commissions
  • Fringe Benefits
    • Laker tickets
    • Clothing
  • Income from outside business
    • Web page
  • Cash prizes won
    • Raffle
    • Lottery
  • Capital Gains
  • Interest/Dividends
exclusions from income

Certain economic benefits don’t have to count as income = exclusions from income

    • Gifts
      • Must see Dominant Reason was out of affection, respect, admiration, charity
      • Ex: transfer of property
    • Inheritances
    • Scholarships
      • May be excluded from income if used to pay tuition/course related fees
    • De Minimis Fringe Benefits
      • Ex: Store’s photocopier, company coffee, telephone
    • Ebay winnings (pg 41)
Exclusions From Income

Do pg 42 WB

standard itemized deductions both help to reduce taxable income you decide

Standard Deduction: Base amount of income that is not taxed Income: $6100 (sglindiv person)

    • Allowed to deduct this amt from your income before taxes
  • Itemized Deduction:
    • State and Local Taxes
    • Gifts to Charity
    • Job Expenses – mileage?
    • Travel
    • Uniforms
    • Education – if maintain or improve skills and/or meet requirements of employer
    • Other: tools, supplies for job, professional journals, protective clothing
Standard & Itemized Deductions(both help to reduce taxable income) YOU DECIDE
  • You will take the larger amount of the two!
credit

A direct reduction of tax owed

  • Credit actually deducted from the amount of tax you owe (dollar for dollar)
    • Child Care Expenses
    • Elderly or Disabled
    • Adoption Expenses
    • Buying new electric car
    • Education expenses
Credit
payment or refund
Payment or Refund?
  • Payment:
    • Due April 15
  • Refund:
    • Check
    • Direct Deposit

Chap 8 Review

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