3 What comes to your mind when you think of the word “TAX” ? Bell Ringer- 2/23/15What comes to your mind when you think of the word “TAX” ?
4 Payroll Taxes Placed on income earned by individuals Largest form of revenue received by governmentAmount taken out of each check varies- base on a person’s annual earningsPaid to the government by individual employees and their employers.Medicare and Social Security
5 Income Taxes Taxes you pay on most types of income you receive. The amount paid by each individual varies based on their income
6 Payroll Tax vs. Income Tax Includes FICA taxes and Income TaxAlso includes amount paid by employer based on employees earningsIncome TaxFederal Income tax deducted from paycheck
7 Pay Stub Social Security Largest Deduction FICA (federal insurancecontribution Act) includes social security and medicare (sometimes)Largest Deduction
8 FICA Federal Insurance Contribution Act Law that requires workers and their employers to contribute to Social Security and MedicareSocial Security is a program that helps provide benefits to those who have retired.Medicare provides health insurance for seniors over the age of 65 as well as certain people with disabilities
9 Withholdings Money that is withheld from your paycheck Enables government to collect taxes at a steady rate (each pay period) instead of at the end of the yearYou pay little tax with each paycheck, so you don’t face a huge tax bill at the end of the year.
10 Gross Income/Gross Pay Amount earned before taxes have been withheld
11 Net Income/ Net PayAmount you receive after withholdings are subtracted from your gross pay
12 Paystub Activity Pay Stub Activity Work on Paystub Activity 1 as class Complete Paystub 2 individuallySocial Security
13 W-4 Form Form filled out when you are first hired at a company Provides information your employer needs to determine how much to withhold from your paycheck
14 AllowancesA number that reduces the amount of income withheld from your paycheckClaiming a lower number on your W-4 form will result in MORE money being withheld from your paycheck… but also may mean you will get back more money at the end of the year.The lowest number you can claim is 0Highest you can go up to is 9… but you need to show proof to IRS for this..
15 IRS Federal agency that collects income taxes Agency in the department of treasuryHeadquarters: Washington D.C.Each year the IRS calls thousands of taxpayers for an auditExamination of their tax return
18 Bell Ringer- 02/24/15How do taxes benefit both you and the government?Think about this… Kelly has $12.11 withheld from her paycheck for taxes… if she didn’t have this withheld, how much would she have owed at the end of the year? (hint- there are 52 weeks in a year!)$12.11 X 52 weeks= $629.72
19 Tax ReturnSet of forms a taxpayer uses to calculate their obligations (what they owe/don’t owe)This is the only way you can get money back. (Usually during Feb-April)You are responsible for information on tax return, if it is incorrect you are liable!
20 Tax RefundIf your tax return shows you paid more money in withholdings than you owed, you will receive a refund!
21 Taxes OwedIf your tax return shows that your withholdings were not enough to cover the taxes you owe, you must send the remaining amount to the government.
22 Social Security Number Unique number assigned to you by the federal governmentNo one else has the same numberThe government uses this number throughout your life to:Identify you as a taxpayerKeep track of your earnings and tax recordsPay you social security benefit when you reach retirement
23 W-2 Form Summary of your earnings and withholdings for the year. You will receive a W-2 for each job you held during the year.When you file a tax return, you must include your W-2!
24 W-2 FormWages/TipsFed. Income TaxEmployerEmployee
25 W2 Form Vs. W4 Form W-2 W-4 Used By: Information found on form: Employer reports wages earned by employee for the yearEmployee to report what they want withheld from their paycheck through selection of marital status and dependentsInformation found on form:Identifies information about the employee, the employer, and wages and deduction breakdowns for the employee for the year.Name, address, Social Security number---and withholding allowance information.How often is it filed?Once a yearAs many times as the employee would like- Always at beginning of employment
26 W2 Form VS. W4 Form W-2 W-4 Who sees the form? Employer files form with IRS and state taxing authority. Employer also MUST give copies to employee at end of the year.Stays in hands of the employer- sometimes the IRS may request a copy.Who is responsible for completing the form?Employer- gives one copy to IRS and one copy to employeeEmployee is responsible for completing it.Employer is responsible for keeping a copy on hand
27 1099 FormIf you have a savings account or any other investments where you earn money- you will receive a 1099 Form at the end of the year.Statement of the interest your bank paid on your savings that year
28 1040EZ Simplest Tax Return Form To qualify the following must be true: You are single or married filing jointly with spouseYou have no dependentsYou and your spouse are under 65 yrsNeither you nor your spouse is blindYour taxable income is less than $100,000You have earned no more than $1,500 in interestYou have no other income besides wages, tips, scholarships, or unemployment
29 Dependent Dependent Independent People who are supported financially Someone who is not supported by anyone else financially
30 Forms, Forms, FORMS! W-4 W-2 1099 1040EZ Determines how much to withhold from your paycheck.Given by yours employer. Summary of how much money you made at a particular company and how much tax was taken out of your paycheck.Form you receive at the end of the year that shows if you made money (interest) on an savings accounts.Also can be given if you were paid money (over $600) but not taxed.Tax form filled out at the end of the year to determine if you get a refund or owe money.
31 1040 EZ Scenarios 1040 EZ Form 2012 Tax Table Jonathon Jackson is a full time high school student. He has a part time job working at the local grocery store each day after school. Last year Jonathon earned $1,525. He is filling out an early tax return, and he is having his refund deposited directly in his Chase bank account in order to receive it as quickly as possible. His savings account number is and the bank routing number is Jonathon’s parents claim him as a dependent on their federal tax return.Use the information given in the scenario and Jonathon’s W-2 to complete a 1040EZ form.1040 EZ Form2012 Tax Table
32 DeductionsExpenses the law allows you to subtract from your adjusted gross income to determine you taxable income4 kinds of deductions:1. Business DeductionsTraveling, meals, gifts, use of car, health insurance, use of home, education, employee pay, etc.2.AdjustmentsIRS or Alimony paymentsItemized/ StandardExemptionsYou, your spouse, children
33 Examples Of Itemized Deductions Medical/dental expensesState and local taxesProperty taxMortgage interestGifts to charityLosses from theft or property damageMoving expensesInvestment expensesYou cannot use the 1040EZ form if you are choosing to itemize your deductions!
34 Standard DeductionSpecific dollar amount that you are allowed to subtract from your taxable income. A base amount of income that is not subject to tax and that can be used to reduce a taxpayer's adjusted gross income.
35 Standard Vs. Itemized Deduction Set dollar amount- $9,500 (2012)ItemizedAllows you to list expensesIf your expenses add up to MORE than what the standard deduction would be, then you should choose to Itemize your deductionsYOU HAVE TO CHOOSE ONE OR THE OTHER! YOU CANNOT DO BOTH!
36 Taxable Income Income figure used to determine your taxes Your adjusted gross income minus your Standard Deduction
38 Things you will need…. 1040 EZ Form W-2 Form 1099 Form Tax Table This is REQUIRED in order to fill out your 1040EZ1099 FormIf you have one!Tax Table
39 Step # 1: Fill In Your Basic Info! Name (first and last)AddressSocial Security Number
40 Step #1-4 1. Fill in Total Wages, Salaries, Tips 2. Fill in Taxable Interest IncomeFrom 1099 form (interest from bank account)3. Fill in Unemployment CompensationsAdd them all up and you will get… -Adjusted Gross Income
41 Step # 5If you are an independent and single you will put $9,500 on line 5If you are an independent, you will flip your sheet over to the back and fill in worksheet 5!
42 Step # 6Subtract like 5 FROM line 4This is your taxable Income!
43 Step # 7 -Federal Income Tax Withheld This will be found on your W-2
44 Step #8 Earned Income Credit Workers with low incomes will qualify**We will not be spending time on this…Leave it blank!
45 Step # 9- Total Payments & Credit Add up the following:Federal Income Tax Withheld (#7)Earned Income Credit (#8)This will result in the total amount of your taxes that you have ALREADY PAID!
46 Step # 10- Tax Table http://www.irs.gov/pub/irs-pdf/i1040tt.pdf Use the tax table to determine how much tax you can subtract from your total payments and credits
51 Bell Ringer- 02/25/15Sarah earned $45,000 last year. When she calculated her taxable income, she found that she owed the government $12,000 in taxes for the year. Sarah already had $7,000 withheld from her paycheck for federal taxes. She owes the federal government an additional $5,000. What is her income? $45,000 What is her tax liability? $ 12,000 What is her withholding tax? $7,000 What is her tax due? $5,000
52 Sources Of Government Revenue 20% of ALL income goes to Federal Gov’t39% accounts from income tax32% is from Social Security and Medicare13% corporate taxes7% is other taxes and fees
53 Sources of Government Income Corporations pay a marginal tax rate anywhere from 15 to 35 percent based on their profit. The more they make, the more they pay.
54 Contributions Social Security Medicare Wages are taxed at a rate of 6.2%Collected on gross incomeMedicareWages are taxes at a rate of 1.45%The total most people pay for SS and Medicare is 7.65% of gross income
55 Employer Contribution For each dollar you earn, your employer will pay 15.3 cents to the government for social security and Medicare taxes.
56 Principles Of Taxation Law that states every taxpayer should be treated equallyThis does NOT mean all taxpayers should pay the same amount.This law states that some people should pay MORE than others.
57 Benefit PrincipleStates that those who use a good or service provided by the government should pay for it.Example- Toll RoadsThose who drive on the road pays tolls.
58 Ability To Pay Principle Those who have larger incomes should pay a larger share of what they receive.Example: Federal Income Tax
60 Progressive Tax Takes a larger share of income as income grows Federal income tax- The more you MAKE the more you PAY
61 Regressive Tax Takes a smaller portion of income as income grows Sales taxLauren makes $16,000/ yearSal makes $45,000/ yearThey both buy a car for $10,000 and have to pay 8% ($800) in sales tax.$800 It is 5% of Laurens income but only 1.8% of Sal’s income
62 Proportional Tax Takes the same share of ALL incomes. This would occur if people were ALL taxed for example 10% of their income for something.This does not exist in our economy.
63 How Taxes Are Collected Direct TaxPaid directly to governmentEx: Income and Property TaxIndirect TaxIncluded in cost of goods and servicesPart of rent is used for landlord to pay property taxPay-As-You-Earn TaxesPaid as you earn incomeFederal Withholding Tax
64 Types of Taxes Income Taxes Sales Tax Property Tax Excise Tax Estate and Gift TaxBusiness and License Tax
65 Types Of Taxes Income taxes Sales Taxes Withheld from paycheck Ex. Federal, state, local taxesIllinois State - 5.0%Local taxes ~ 1-2%Sales TaxesTaxes added to price of goods and servicesSome states don’t have sales tax but they pay more money in property or income tax to off set what they lose in state tax.
66 Types Of Taxes Property Tax Excise Tax Taxes on the value of real propertyAdded to home or loan paymentsExcise TaxCollected on the sale of specific goods and services such as tobacco, gasoline, and alcoholic beveragesUnlike sales tax, excise tax is included in the price charged to customers.Ex, when you pay for gas- the price includes both federal and state excise tax.
67 Types Of Taxes Estate Tax Gift Tax Property tax given to someone legally entitled to an estate when a person dies.Gift TaxTaxes the giver of gifts may payFederal law allows people to make some gifts that are not taxesMaximum value of gifts that were not taxed was $12,000 in 2008.
68 Types Of Taxes Business or license tax Paid to receive licensing or a permit to operate a type of businessEx. To be a teacher you have to take certification test which you pay for.
69 Customs Duties and Tariffs Customs Duties or TariffsControls the flow of products imported into the united statesThis results in items from abroad being sold at higher prices than they otherwise would be.
70 Skittles Activity All students will be given a bag of Skittles DON’T EAT THEM!Count your SkittlesFill out the Worksheet that goes along with this activity!
72 Bell Ringer- 2/24 You Cut The Taxes! Assume you are a member of congress. You have been instructed by your constituents to cut taxes. In order to cut taxes, you must cut programs.Read the descriptions of each program and decide with three programs you will want to keep and which three you want to cut and explain why…
73 Power To Influence Government use tax to do 2 things Generate Revenue Influence consumer buying decisionsExample: “Sin Tax”The government taxes certain products to discourage their use because they are harmful to our bodies even though they are legalMillions of Americans buy and use these products anywayThe government taxes these products higher because it is a choice to use them- not everyone uses them.
74 Government SpendingThe federal government spends $2.65 trillion each yearRoughly $15,000 for every person who lives in the United StatesMost of the government’s spending pays for goods and services that benefit all Americans.Public Goods: Roads, schools, national defense, and services of various regulatory agencies.
75 Taxes Fund Public Goods and Services Social Security, Medicare, and Retirement36%National Defense23%Foods Stamps and Unemployment(Social Programs)19%Taxes are required payments of money to various levels of government.Taxes provide revenue for public goods and services that benefit the community and the nation as a whole.Taxes help support goods and services such as our national defense, state and local police and protection agencies, health care, public education, financial aid for the disabled and unemployed, and social services for low-income families.The amount of revenue raised by taxes determines the amount of services the government can afford to provide.State and Local PoliceNet Interest on DebtPublic Education2%12%8%
76 Goods and Services State and Local Government Provide… Building and maintaining roadsOperating police and fire protection systemMaintaining a criminal justice systemBuilding and staffing schoolsBuilding and operating state colleges and universitiesSupporting medical facilitiesConstructing and operating sewage treatment plantsOperating unemployment compensation programs
77 State and Local Gov’t Regulations Rules are written into laws enforced by state and local governmentExample:In order to drive, you must have a drivers licenseTo build a house you must have a permitThese create order and safety in the state and local communities
78 BINGO! Allowance Gross Income Business or license Tax Income Tax Custom duty or tariffDependentDeductionEstate taxExcise taxFICA1040EZ Form1099 FormW-2 FormW-4 FormGross IncomeIncome TaxIRSGift TaxNet incomePayroll taxProperty TaxPublic GoodSales TaxSocial Security NumberTax ReturnTaxable IncomeWithholding