What are Taxes? Taxes are fees that support government programs and are required by law to be applied to income, property, and goods. Taxes are collected.
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What are Taxes? Taxes are fees that support government programs and are required by law to be applied to income, property, and goods. Taxes are collected at the federal, state, and local levels.
Why Pay Taxes? Taxes pay for a variety of services we use such as road maintenance, public schools, police and fire protection, the armed services, parks, libraries, and retirement income for the elderly.
Tax Categories There are four major categories of taxes. These include: Taxes on earnings (income taxes) Taxes on purchases (sales taxes) Taxes on property (property taxes) Taxes on wealth (estate taxes)
Income Tax Income tax is the tax on wages, salaries, commissions, fees, tips, bonuses and self-employed earnings. Income tax is also collected on income generated from interest, dividends, and capital gains. Income taxes can be collected by federal, state, and local governments. Income tax is a type of progressive tax. This means that the tax rate increases as your income level increases.
Sales Tax This is the tax added onto the price of goods and services. Tennessee has a state sales tax of 6% on food and food ingredients and 7% on nearly everything else. Oak Ridge has an additional sales tax of 2.75% Sales tax is an example of a regressive tax. This means that the tax has a greater impact upon lower income individuals than higher income individuals.
Property Tax This is the tax that an owner is required to pay on the assessed (appraised) value of their property (land, buildings, and homes). Registration fees on boats and vehicles are a type of tax on your personal property. Property taxes are typically the biggest source of revenue for local governments.
Estate Tax This is a tax levied against an individual’s wealth at the time of his or her death. Estate taxes are complicated. There are fluctuating exemption amounts that seem to change annually. The current exemption amount is the first 5 million in assets. Anything over this amount is taxed at 35%
Federal Income Tax This is collected by the federal government to support its programs. This is the federal government’s main source of revenue. Employers withhold this tax from employees as payroll deductions and then send the tax to the Internal Revenue Service (IRS). Self-employed individuals are responsible for withholding the proper amount of tax from their incomes and submitting this to the IRS. This is usually on a quarterly basis.
FICA FICA stands for the Federal Insurance Contributions Act. This is a payroll tax on income that funds Social Security and Medicare. Social Security (OASDI) provides for old-age, survivors, and disability insurance benefits. Every employee pays a tax of 6.2% of their income for Social Security. Medicare provides health insurance to retirees and certain disabled persons. Every employee pays a tax of 1.45% of their income for Medicare. Employers match their employees contributions for both Social Security and Medicare.
The Internal Revenue Service The Internal Revenue Service is the federal agency that collects federal income taxes and enforces the nation’s tax laws. The IRS is an agency under the Department of Treasury
State Income Tax Most states also collect an income tax that helps pay for state services. This is also collected by every employer on behalf of its employees as a payroll deduction and then sent to the state revenue department. Tennessee is one of nine states that do not have a state income tax.
Important Tax Forms W-4- This form tells your employer the correct amount of tax to withhold from your paycheck W-2- This form reports an employees annual wages and the am0unt of taxes that have been withheld (January 31) 1099-INT This form reports the interest that you’ve earned throughout the year 1099-DIV This form reports the dividends and capital gains that you’ve received throughout the year