3 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.
4 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.
5 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 thecommunity 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 ofservices the government can afford to provide.State and Local PoliceNet Interest on DebtPublic Education2%12%8%
6 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
7 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
9 Individuals Contributions Social SecurityWages 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
10 Employer Contribution For each dollar you earn, your employer will pay 15.3 cents to the government for social security and Medicare taxes.
11 Principles Of Taxation A 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.
12 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.
13 Ability To Pay Principle Those who have larger incomes should pay a larger share of what they receive.Example: Federal Income Tax
15 Progressive Tax Takes a larger share of income as income grows Federal income tax- The more you MAKE the more you PAY
16 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
17 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.
18 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
19 Types of Taxes Income Taxes Sales Tax Property Tax Excise Tax Estate and Gift TaxBusiness and License Tax
20 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.
21 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.
22 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.
23 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.
24 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.
25 Payroll Taxes A tax placed on income earned by individuals Largest form of revenue received by governmentPaid to the government by individual employees and their employers.The money from these taxes fund Medicare and Social SecurityAmount taken out of each check variesbased on a person’s annual earnings
26 Income Taxes Taxes you pay on most types of income you receive The amount paid by each individual varies based on their incomeThe money from these taxes go into a general fund
27 Pay Stub Social Security Largest Deduction FICA (federal insurancecontribution Act) includes social security and medicare (sometimes)Largest Deduction
28 FICA Federal Insurance Contribution Act A 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 retiredMedicare provides health insurance for seniors over the age of 65 as well as certain people with disabilities
29 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
30 Gross Income/Gross Pay Amount earned before taxes have been withheld
31 Net Income/ Net PayAmount you receive after withholdings are subtracted from your gross pay
32 Gross Income vs. Net Income State taxes/withholdings401K / Retirement accountMedical/Dental insuranceSocial SecurityMedicareNet Income
33 Paystub Activity Pay Stub Activity Work on Paystub Activity 1 as class Complete Paystub 2 individually
34 Forms, Forms, FORMS! W-4 W-2 1099 1040EZ Determines how much to withhold from your paycheck.Given by your 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.
35 W-4 FormThe form that is filled out when you are first hired at a companyProvides information your employer needs to determine how much to withhold from your paycheck
36 AllowancesA number that reduces the amount of income withheld from your paycheckClaiming a lower number on your W-4 form will result inMORE money being withheld from your paycheckmay 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 9you need to show proof to the IRS for this
37 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
38 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!
39 Tax RefundIf your tax return shows you paid more money in withholdings than you owed, you will receive a refund
40 Taxes OwedIf your tax return shows that your withholdings were not enough to cover the taxes you owe, you must pay the remaining amount to the government.
41 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!
42 W-2 FormWages/TipsFed. Income TaxEmployerEmployee
43 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
44 Tax Return Forms Forms to file your individual federal taxes 1040 1040EZ
45 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
46 Dependent Dependent Independent People who are supported financially Someone who is not supported by anyone else financially
47 DeductionsExpenses the law allows you to subtract from your adjusted gross income to determine you taxable income4 kinds of deductions:Business DeductionsTraveling, meals, gifts, use of car, health insurance, use of home, education, employee pay, etc.AdjustmentsIRS or Alimony paymentsItemized/ StandardExemptionsYou, your spouse, children
48 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!
49 Standard DeductionSpecific dollar amount that you are allowed to subtract from your taxable income
50 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 otherYOU CANNOT DO BOTH!
51 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 retirementSocial Security
52 Taxable IncomeIncome figure used to determine your taxes
54 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
55 1040 EZ Scenario Jonathan Jackson What items do you need to complete his 1040EZ?Determine whether he is an independent or a dependentComplete the 1040EZ and determine if he is going to receive a refund!
56 Step # 1: Fill In Your Basic Info! Name (first and last)AddressSocial Security Number
57 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
58 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!
59 Step # 6Subtract like 5 FROM line 4This is your taxable Income!
60 Step # 7 -Federal Income Tax Withheld This will be found on your W-2
61 Step #8 Earned Income Credit Workers with low incomes will qualify**We will not be spending time on this…Leave it blank!
62 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!
63 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