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Payroll Taxes & W-4s

Payroll Taxes & W-4s. Why do we pay taxes? Roads, Operation of Government, Schools, Welfare, Police, etc… The money for these has to come from somewhere!!!. Federal Taxes  These go to the U.S. Government State and Local Taxes

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Payroll Taxes & W-4s

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  1. Payroll Taxes&W-4s

  2. Why do we pay taxes? • Roads, Operation of Government, Schools, Welfare, Police, etc… • The money for these has to come from somewhere!!!

  3. Federal Taxes  These go to the U.S. Government • State and Local Taxes  These go to the state, city, and ward in which you live.

  4. All of the money you make is taxed. • Employers don’t give you all of your money. • They hold some for the following: • Payroll Taxes. • Federal Income Taxes

  5. Payroll Taxes • Payroll Taxes: • Social Security Tax • S.S. gives people over 65 retirement money. • S.S. helps disabled people who can’t work. • Medicare Tax • Medicare helps people 65 and older with medical problems.

  6. Payroll Taxes • 2006 Payroll Tax Rates: • Social Security: 6.20% • Medicare: 1.45% • If you make $10,000: • SS: $10,000 * 6.20 % = $620 • Medicare: $10,000 * 1.45% = $145

  7. Income Taxes • Federal Income Taxes: • Pays for National Defense • Pays for Law Enforcement • Helps pay off the National Debt • Pays for National Parks • Helps Veterans • And much more!

  8. Income Taxes • Income Taxes are based on information you put on a W4 form. • What is a W4 form? • Whenever someone hires you, they will give you a W-4 to fill out. • Employers use the information on that form to figure our how much money to withhold for income tax. • The W4 form will ask how many allowances you have.

  9. Here is Mister Crow’s W-4 Form:

  10. Income Taxes • What is an allowance? • You do not have to pay all of your income taxes right away. • You can pay all your taxes in April if you want. • An allowance “allows” you a break on your taxes or the chance to pay your tax at a later date. This way, you don’t have as much tax taken out of your weekly paycheck.

  11. Income Taxes • But be careful!!! You will still have to pay those taxes at a later date! • 0 Allowances  The government holds as much as it can. You will probably be given a refund at the end of the year. • 1 Allowance  Most people choose 1 allowance. They will normally not owe any tax at the end of the year. • Taxes change each year, and sometimes the government will withhold too much. In this case you get a refund!

  12. Gross Pay – What you earn. • Net Pay – What you take home after your taxes are taken out. • Gross Pay – (Payroll Tax + Income Tax) = Net Pay • $10,000 - ( (625 + 145) + 2200) = $7030

  13. Rule of Thumb: • Plan on taking home less than ¾ of your salary!

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