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Taxes!!. We Need Taxes For…. National Defense Police and fire protection Health services Public Education Water, gas and electric systems Environmental protection…. Your Paycheck Stub.
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We Need Taxes For….. • National Defense • Police and fire protection • Health services • Public Education • Water, gas and electric systems • Environmental protection…
Your Paycheck Stub • When you first get a job, and receive your first paycheck, you will receive something that looks like this…along with your check…
Paycheck Terms • Gross Income – all money, goods, and property received (BEFORE TAXES ARE TAKEN OUT) • Net Income – The amount of take home pay (AFTER TAXES ARE TAKEN OUT)
Taxes and Your Paycheck FICA – Federal Insurance Contribution Act • Amount paid to the social security trust for fund for the Social Security and Medicare programs (6.2% withheld for SS and 1.45% for Medicare) Federal Income Tax • Amount paid to the US Treasury to support US government programs and services (ranges from 10-35% of your paycheck) State Income Tax • Amount paid to your state government for state funded programs(ranges from 3-11% of your paycheck) Local Income Tax • Occupational tax paid to your city or county for the privilege (ranges in %—IL does not withhold this tax)
Withholdings • Taxes are paid as income is earned • Taxes are withheld based on Form W-4 information W-4 Employee’s Withholding Allowance Certificate A form that helps an employer determine how much to withhold from an employee’s paycheck.
Withholding Cont. • Withholding too much • Payroll calculated on ANTICIPATED annual salary • Results in refund • Withholding too little • Funds due to government when taxes are filed • Payments can be made • Reduce allowances • Specify extra & withheld on W-4
W-4 Terms • Exempt (from withholding)–do not pay federal income tax…BUT PAY SOCIAL SECURITY • Dependent: A person who relies on someone else for support. • A taxpayer may claim an exemption for a dependent if certain conditions are met. Taxpayers cannot claim themselves or their spouses as dependents.
Allowance – Number that reduces the amount withheld on you paycheck • The larger the allowance, the less money withheld from your paycheck LET’S FILL ONE OUT!!!!
Filing a Tax Return • Must make a certain amount of money • Tax Return– Set of forms that a tax payer uses to calculate their tax obligation. • If you owe – you pay • If you overpaid – you get refund • Tax Day!!! April 15th
Tax Documents • W-2 • Form 1099–INT • Form 1040EZ • You are single or married filing jointly • You have no dependents (people you support financially) • You and your spouse are under 65 • Neither you and your spouse is blind • Your taxable income is less than $50,000 • You earn no more then $400 in interest • You had no income other than wages, interest, tips, scholarship, or unemployment compensation
Form W-2 • Shows how much employees earn • Copy must be attached to tax return • How much was withheld
1040EZ • Adjusted Gross Income –when you add the income from all sources (this is your total income before subtracting any deductions or exemptions) • Determine Your Deduction • Standard deduction – Amount you may subtract from your adjusted gross income
1040EZ Continued • Taxable Income – after you subtract exemptions and deductions from your adjusted gross income • Federal Income Tax Withheld – Amount that was withheld from your paychecks (found on W-2) • Earned Income Tax Withheld – For workers with low incomes and qualify for this
1040EZ Continued • Electronic funds transfer – refund can be deposited electronically in bank • Sign – Always remember to sign your return and fill in the date and your occupation • Check for errors – ALWAYS check forms for accuracy before you send them to IRS. If you make a mistake, you may have to pay a penalty or may receive a lower refund than you deserve.
Filling Out The Forms… • Adjusted Gross Income: Total income reduced by certain amounts (such as contributions made to a traditional IRA or for student loan interest payments) • Earned Income: Includes wages, salaries, and tips that are includible in gross income and net earnings from self-employment earnings.
Filling Out The Forms… • Standard Deduction: An amount, provided by law that taxpayers can deduct from their adjusted gross income before tax is determined. • Tax Deduction: A part of a person’s or business’s total expenditures that can be subtracted in determining taxable income.
Filling Out The Forms… • Unearned Income: Income other than pay for work performed. Interest and dividends from savings or investments are common types of unearned income. • Exemptions (Personal or Dependency): Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. The total is subtracted from adjusted gross income before tax is figured on the remaining income.
Ability to Pay • Those people that have higher incomes and more possessions pay more in taxes simply because they can afford to.
Progressive Taxes The tax rate increases as the taxable income increases. Higher Income = Higher Taxes
Progressive Taxes • A tax whose rate takes a larger share as the amount of income grows. • Ex- Joe earns $25,000 and pays 15% in federal income taxes, or $3,750. • Ex-Sally earns $300,000 and pays 39.6 % in federal taxes, or $118,800 • As you can see, Federal Income Tax is PROGRESSIVE. Bill Gates is in the highest tax bracket!
Regressive Taxes Tax that takes a smaller percentage from those with a higher income than from those with lower income. • EX- Joe earns $20,000 and pays 6 % tax on a $10,000 used car, or 3% of his income. • Sally earns $50,000 and pays 6% tax on a $10,000 used car, or 1.2% of her income. • EX -Excise, sales, property, motor vehicle taxes
