Tax Forms & Deductions

1. Tax Forms &Deductions One day you are going to miss my PowerPoints Mr. Rosenstock Economics San Fernando High School

2. Net Income vs. Gross Income • Gross income is the total amount a worker is paid before any required or voluntary deductions are made • Net income, also called “take home pay,” is the amount a person receives when he/she cashes or deposits his/her check. It is the remaining amount after deductions are made

3. Gross Income - Deductions Net Income

4. Required Payroll Deductions • By law, employers must pay taxes deducted from employee paychecks • The most common taxes are federal and state, and sometimes cities have their own local taxes • In addition, most employees have to pay a Social Security Tax (FICA), and Medicare tax contribution with each paycheck

5. Voluntary Payroll Deductions Voluntary deductions are money you choose to deduct for various purposes – examples include: • Health Insurance • Retirement Savings • Union Dues • Charitable Contributions Voluntary deductions are made pre-tax. That means they are taken from your check before taxes are deducted

6. What are taxes? • Taxes are required contributions to state revenue, levied by the government on personal income and business profits or added to the cost of some goods, services, and transactions

7. State & Federal Income Tax

8. Social Security The Social Security Tax is also called the FICA tax (Federal Insurance Contributions Act) Social Security taxes provide the following benefits to employees and their dependents: • Retirement benefits • Benefits for the dependents of retired workers • Benefits for the disabled and their dependents

9. Medicare • The Medicare tax is used to provide medical benefits for certain individuals when they reach age 65 • Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65

10. Other Taxes • Property tax • Sales tax • Gasoline tax • Local/City taxes

11. What is taxmoney used for? • Bridges • Road maintenance • Research • Education • Armed services, national defense, veterans, and foreign affairs • Retirement income for elderly • Social programs • Physical, human, and community development • Law enforcement • Interest on the national debt

12. Tax Forms • Federal Tax • I-9 • W-4 • W-2 • 1040EZ • California State Tax • 540 2EZ

13. I-9 • All employees must complete this form and provide valid original identification • You are not eligible for pay until Payroll Services receives an I-9 • The purpose of this document is to show that each new employee hired after 1986 is eligible to work in the United States

15. W4 • You use W-4 Employee's Withholding Allowance Certificate Form to establish your withholding allowances for Federal income taxes.

16. What is a “Withholding Allowance?” • Employee-claimed exemptions on the tax form (W4) employers use to determine how much of an employee’s pay to subtract from his/her paycheck to send to the tax authorities • The more allowances you claim, the less income tax will be withheld from your paycheck • The fewer allowances you claim, the more income tax will be withheld from each paycheck

17. Exemption: An exemption is a deduction allowed by law to reduce the amount of income that would otherwise be taxed • the IRS allows tax filers to claim $4,000 for each of their allowable exemptions • Personal exemption: You can put one exemption for yourself if nobody else can claim you as a dependent • Dependent exemption: If you have dependents you may claim one for each dependent • Dependent: Children or family members who depend on you for financial support

18. Less chance of tax refund Greater chance of tax refund Higher # = less $ withheld Lower # = more $ withheld

19. W-2 • Form W-2 reflects all taxable wages you received during the calendar year and all taxes withheld from those wages • The form serves as an annual report that enables you to file your personal income tax return with the Internal Revenue Service This is the form you use to fill in and complete your tax return Your employer will give you this form around February of each year, so you can complete your tax return by April 15

21. 1040 EZ Similar to the 1040 income tax form, 1040EZ is a faster and easier way to file your taxes This form is only eligible for people with income less than $50,000 and interest income of $400 or less

23. California Form 540 2EZ • This is the form most of you will use to file your taxes with the state • Eligibility to use: • CA resident • Single / Married / RDP (Registered Domestic Partner) • Income from all sources less than $100,000 • Exceptions: • You are a dependent of another taxpayer AND: • Have dependents of your own OR • Earn less than $13,679 You will then use Form 540

25. Student Loans • When you finish college you need to take care of any student loans you received • You can deduct up to $2,500 of student loan interest paid each year • Your modified gross income cannot be more than $80,000 • Only the person whose name is on the loan may take the deduction • The loan must be from an accepted institution (not your folks) • Do NOT delay paying a loan! – they keep accruing interest!