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Ch.5 Taxes: How Much of Your Income Will You Keep?. 5.1 Taxes and Your Paycheck 5.2 File a Tax Return 5.3 Taxes and Government 5.4 Government and Spending. 5.1 Taxes and Your Paycheck. 5.1 Vocabulary Words

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ch 5 taxes how much of your income will you keep

Ch.5 Taxes: How Much of Your Income Will You Keep?

5.1 Taxes and Your Paycheck

5.2 File a Tax Return

5.3 Taxes and Government

5.4 Government and Spending

5 1 taxes and your paycheck
5.1 Taxes and Your Paycheck

5.1 Vocabulary Words

Directions: Write each word with the full definition. Then write a sentence using the vocabulary word.

  • Payroll tax –
  • Income tax –
  • Federal Insurance Contributions Act (FICA) –
  • Withholding -
5 1 taxes and your paycheck1
5.1 Taxes and Your Paycheck

5.1 Vocabulary Words

Directions: Write each word with the full definition. Then write a sentence using the vocabulary word.

  • Payroll tax –
  • Income tax –
  • Federal Insurance Contributions Act (FICA) –
  • Withholding -
5 1 taxes and your paycheck2
5.1 Taxes and Your Paycheck

Payroll Taxes

  • Are placed on income earned by ________
  • Amount based on individual’s total earnings & tax laws that apply to type of income
  • Paid to government by individual employees and their ________________________
  • Income taxes – pay on most types of income you receive.
    • Not a fixed ________________________
    • Share varies, depending on each taxpayers financial & family situation
    • In 2008, ranged from 10 – 30%
  • FICA – law that requires workers and their employers to contribute to Social Security and ____________________________
  • Withholding
    • Income withheld from paycheck goes to prepay federal income tax & social insurance _____________________
    • Makes sure government collects taxes at steady rate & more likely people will pay taxes
  • Your Paycheck Stub
    • Shows gross income & withholding
    • Gross Income –
    • Net Income –
    • Shows what else was withheld
5 1 taxes and your paycheck3
5.1 Taxes and Your Paycheck
  • Form W-4
    • Fill out when you are hired for a job
    • Required by __________________
    • Gives info needed to determine correct amount to withhold from check
  • Your Responsibility for Proper Withholding
    • You’re responsible for consequences if form is ______________________
    • If amount paid to government not enough, then you owe at end of year
  • Allowances
    • worksheet provided with W-4, tells how to calculate # of allowances to ___________________________
    • More __________________ claimed, smaller amount withheld will be
    • Will not change amount of taxes owed
    • If do not pay enough in taxes, then owe at end of year
  • Adjusting Your Allowance
    • W-4 does not consider special situations
    • Withholding Too Much
      • Students often have too much withheld because work more during summer
      • Summer you may work 40 hrs so percentage based on that for whole ________________
    • Withholding Too Little
      • Allowance calculated may result in too little _________________________________
      • Can avoid paying large bill by:
        • Sending extra tax payments to the IRS
        • Claiming fewer allowances
        • Specifying extra amount to be withheld from each paycheck on your ___________

Wkst. – fill in W-4 form

5 1 taxes and your paycheck4
5.1 Taxes and Your Paycheck
  • Over withholding as a Way to Save
    • Some choose to “over withhold” as a way to _________________
    • Claiming too few allowances means a refund at end of year
    • Not good from financial point of _______________________
      • Because if you put that money in a savings account, you make money or interest off of it.
    • Reduce withholding to be more in line with what owed by claiming additional _____________________
    • Goal – make withholdings almost exactly equal to what you ____________
    • Home Work – p. 162, Questions #1 - 7
5 2 file a tax return
5.2 File a Tax Return
  • Tax Return –
  • Form W-2 –
  • Form 1099-INT –
  • Form 1040EZ
  • Dependent
5 2 file a tax return1
5.2 File a Tax Return

15. Deduction –

16. Social Security Number –

17. Taxable Income -

5 2 file a tax return2
5.2 File a Tax Return
  • Your Income Tax Return
    • If you have income, you must file a tax ________
    • Income more than just wages
    • All income you receive is ________________
    • A tax return is a set of forms to calculate obligations
    • Not required to fill out if earned less than minimum ______________________
    • Shows whether you owe the government or they owe you
  • Sources of Information for Your Tax Return
    • Form W-2
      • Must have from employer by January 31st
      • Will get for each job you hold for the fiscal _______________
      • When filing, you get a copy and the IRS gets a copy
      • If you do not file, IRS will let you ________
    • Form 1099-INT
      • Will receive from bank stating what interest you earned from _________ __________
      • This is all a younger person usually needs
  • Income tax forms
    • The EZ way – must meet __________
      • You are single or married filing jointly with your spouse
      • No __________________
      • You and spouse under ________
      • Neither you or spouse are blind
      • Have taxable income of less than $_____________________
      • Earned no more than $1,500 in interest
      • You had no income other than wages, interest, tips, scholarships, or unemployment ___________
    • Form 1040A & 1040
      • May use if :
        • Older
        • Have children
        • Invest in stock __________
      • Allows you to list or itemize deductions to reduce amount you owe
      • http://www.ehow.com/video_22597967_file-1040ez-dependents-worksheet.html
5 2 file a tax return3
5.2 File a Tax Return
  • How to Complete a 1040EZ
    • Identify Yourself
      • Need name, address, and social ___________ _____________
      • Below ID number, is checkbox presidential elections – check box to contribute to ______________
    • Income
      • Total Wages, Salaries, & Tips
        • Income received for over one _______________
        • Calculate total earnings from all W-2 forms
  • Taxable Interest Income
    • Fill in amount of interest reported on your ___________________
  • Unemployment Compensation
    • Fill in amount of any unemployment compensation received
  • Adjusted Gross Income
    • Add income from lines 1, 2, & 3 together = adjusted ___________ _____________
    • Record on line 4
  • Determine Your Deduction
    • If parents claim you as dependent, you cannot claim
    • If no one else claims you, enter the amount ____________________.
    • Forms allow tax payers to deduct those they support
      • Reduces amount of income on which they must pay ________________
      • Standard deduction – amount that all tax payers may subtract from adjusted gross income
      • Amount varies according to filing status
    • The form will tell you what to do depending on filing ______________________
5 2 file a tax return4
5.2 File a Tax Return
    • Your Taxable Income
      • Line 5 subtracted from adjusted gross income = __________ __________
      • This is the income figure used to determine your taxes
  • Payments and Tax
    • Federal Income Tax Withheld
      • The next step on form that goes on line 7
      • Total withholding for year is in box 2 on your ____________ for each job
      • If had more than one job, need to add up all of box 2’s
    • Earned Income Credit
      • Use if have low _______________
      • Use line 8a
      • Treated as if an additional tax _______________________

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  • Total Payments
    • Line 9 – will add withholdings and earned income ________
    • Result is total amount of taxes already paid
  • Tax - http://www.irs.gov/pub/irs-pdf/i1040tt.pdf
    • 1040EZ contains table that tell you your total tax for year
    • Taxable income recorded on line _____________
    • On table, locate two numbers within your _____________ income falls.
    • Then find, in the next column, what applies to youof a
5 2 file a tax return5
5.2 File a Tax Return
  • Math of Money, p. 169

Use the tax table on p. 168. Your W-2 form reports that you made $35,539. Your W-2 form also reports that $4,053 was withheld from your wages for federal income tax. You receive a 1099-INT from your bank that tells you your interest income was $281. You are single and are not claimed by any other person as a dependent.

1. How much is your adjusted gross income?

_______ + ________ = ______

2. How much is your taxable income

________ - ________ = ______

*Use this answer to do answer # 3

3. What is your total tax for the year

*use the tax table on p. 168

  • What is the amount of your payment or refund?

_______ - ________ = ______

5 2 file a tax return6
5.2 File a Tax Return
  • Refund
    • Deposit Your Refund Electronically
      • have option of depositing electronically into checking or savings ________________
      • You need the routing number, banks electronic address for fund transfers, to have directly deposited
      • Also need savings/checking _________________
  • Amount You Owe
      • If withholding is less than tax calculated for line 10, you would record number on line 12. This is amount you _________________
  • Sign Here
    • Must sign name with ___________ hand writing
    • Must write in date
    • When signing, saying that you are who you say you are
  • Check for Accuracy and File Your Return
    • If a mistake is made, then you may have to pay a penalty or receive a lower ____________________________
    • If owe money, write a check to IRS or give credit card number
    • If paying with credit card, may be charged additional fee of __________%
    • The due date is April _______ unless falls on Sunday or a holiday
5 2 file a tax return7
5.2 File a Tax Return
  • Self-Employment Tax
    • People who work for themselves pay ___________ _______
    • Paying on a Quarterly basis
      • Must earn more than $400 in a year
      • Must use form ______________
      • Must pay every 3 months
      • Up to you to remember to pay
  • Schedule C
    • Required to attach schedule C because of limited _____________
    • Must keep detailed records of business expenses
    • The amount determined as net of loss on form written on line 12 of _____________________
    • Self-employed pays same taxes as __________________________
    • Difference is self-employed have to withhold their taxes and pay ________________________
5 2 file a tax return8
5.2 File a Tax Return
  • Electronic Filing
    • May file _________________
    • More than 60% filed online in 2006
    • Takes 3 weeks or less to get refund ______________
    • Can purchase software to do it on own(ex. Quicken, Tax Pro)
    • There are also ______ ______
    • Can get tax refund loan
      • They give you less than ____________ from refund, and take whatever you owe when comes in

Assignment:

Do questions 1 – 6 on page 172

5 3 taxes and government
5.3 Taxes and Government
  • Sales Tax -
  • Property Tax –

20. Excise Tax –

21. Estate Tax –

22. Gift Tax

5 3 taxes and government1
5.3 Taxes and Government

23. Business or License Tax –

24. Customs Duty or Tariff -

5 3 taxes and government2
5.3 Taxes and Government
  • Social Security and Medicare
    • Contributions to Social Security
      • FICA regulations – wages taxed at _________
      • Collected on gross income up to max level & adjusted for inflation each year
      • 2008 – maximum income taxable was $____________________
    • Contributions to Medicare
      • 1.45% taken
      • total percentage for both is __________%
    • Employers Contribution
      • Match ___________________
      • for each dollar up to max of 15.3 cents – employee=7.65, employer=7.65
      • _____________must pay all of 15.3 cents
      • half payments can be subtracted from adjusted gross income to reduce income taxes
  • Sources of Government Revenue
5 3 taxes and government3
5.3 Taxes and Government
  • Classifying Taxes
    • Three different ways to group taxes
    • _________________
      • Every taxpayer should be treated equally
      • Benefit Principle – those who use gov’t services should pay for it(ex. Toll road)
      • Ability-to-pay principle – larger income pays larger share
        • Ex. Fed. Gov’t – range ___ -____% based on amount made
    • Taxes and Income
      • Progressive taxes
        • Take larger share of larger incomes, ex. Salary went from ________to ___________
  • Regressive Taxes
    • Take smaller share of higher incomes than ___________
    • Ex. Louisa make 16,000 per year, Ray makes 45,000 per year. Both buy cars for 10,000 at .08% sales tax. This takes 5% of Louisa’s income vs. 1.8% of Rays
  • Proportional Taxes
    • take same share of all ______
    • No perfect examples of this in our country
  • The only difference between the three is the ____________of different incomes that it takes
5 3 taxes and government4
5.3 Taxes and Government
  • How Taxes are Collected
    • Direct Taxes – income and property paid directly to ______________
    • Indirect Taxes – taxes included in the cost good or __________= rent
    • Pay-as-You-Earn Taxes – paid as you earn income, ex = Federal Withholding taken out at every ________________________
  • Type of Taxes
    • Income Taxes – states and cities impose income taxes patterned after Federal System
      • Difference is tax _______________

2. Sales Taxes – taxes added to the price of goods & services at time of _________________

    • Percentage of cost of each purchase
    • Paid when ___________food, gas, etc…
    • Divided between local and state governments
  • Property Taxes – tax on value of real property
    • Gov’t estimates value of land, structure, etc…
    • Tax is percentage of _____________
    • Used by local governments & schools
    • Can be added to house _____________(called escrow account)
5 3 taxes and government5
5.3 Taxes and Government
  • Excise Taxes – collected on sale of specific goods and ______________.
    • Ex. Tobacco, gasoline, & alcohol
    • Included in the price
  • Estate and Gift Taxes
    • Estate – when a person dies, property may be inherited by those legally ________to the estate
    • Only estates of a certain amount and higher are _____________________
    • Gift – giver of gifts may have to pay if $12,000 or over as of 2008.
    • Tax increased at times due to inflation
  • Business and License Taxes
    • To operate certain businesses, must have license, permit, or stamp.
    • Tax is paid for certification, which may have a ___________ (ex. Doctors, etc…)
  • Customs Duties and Tariffs
    • taxes to control the flow of products imported into the ________________
    • Imposed on some imports
    • Results in some items from abroad to be sold at _____________ prices than they otherwise would be

Assignment

- Answer questions on p. 178, #1-4

5 4 government spending
5.4 Government Spending
  • The Power to Influence
    • Used to influence consumers’ buying _________________
    • Taxing means fewer people will buy it
    • Example – “Sin” taxes on legal goods that are bad for your health. What item is taxed like this? ____________________
    • Tax Cuts
      • Lower taxes = more beneficial choices
      • In 2008, President Bush led congress to give a tax rebate to encourage consumers to ____________________
      • High unemployment areas reduced property taxes for businesses
      • Can also deduct because donated to ________________________
  • Government Spending
    • Federal gov’t spends or transfers more than $2.65 ____________ each year
    • State & local spend half as much
    • Your cost = $___________ per year
    • Most spending pays for goods and services that benefit all Americans
    • Public Goods – roads, schools, national defense, etc…
    • Federal tax dollars used in ____ major areas

Vocab Definition & Sentence

25. Public Good -

5 4 government spending1
5.4 Government Spending
  • Types of Federal Spending
    • Social Security, Medicare, and other retirement programs - _____%
    • National Defense – ______%
    • Social Programs, such as food stamps and unemployment – _______%
    • Physical, Human, and community development(education, general science, & space program) – __________%
    • Interest on National Debt – ______%
    • Law Enforcement & general government – ____%
  • Debt Reduction
    • Late 1990’s thru early 2000’s had tax _______ used to pay down national debt
    • By 2002, fed. Gov’t spending more
5 4 government spending2
5.4 Government Spending
  • State and Local Government Regulations
    • Enforce many rules and _______
      • Example: driver’s license, building permit
    • Create order and safety in states and local _________________

Assignment

P. 183, #1-8

  • What State and Local Governments Provide
    • Building and maintaining ________
    • Operating police and fire ________
    • Maintaining a criminal justice system
    • Building and staffing schools
    • Building and operating state colleges and _____________
    • Supporting medical facilities
    • Constructing and operating sewage treatment ____________
    • Operating unemployment compensation ________________