1. 2.2.2.G1 The Basics of Taxes Advanced Level

2. 2.2.2.G1 Our Tax System GOALS Explain the purpose of taxes and describe the different types of taxes. Describe the U.S. tax system and explain how it works

3. 2.2.2.G1 Purpose of Taxes In a free enterprise system such as ours, the government collects money from citizens and businesses in the form of taxes. These incoming funds to the government are called revenue. The government spends the revenues received according to priorities set by Congress.

4. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona What are taxes? Are you a taxpayer? Taxes – A sum of money demanded by a government to support the government itself as well as specific facilities or services Paid by taxpayers – A person who pays a tax to national, state, county or municipal (city/town) governments

5. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Community Community – a group of people with common interests and concern for the common good United States State County City/ town

6. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona What are benefits of being a part of these communities? Roads Libraries Military for national security Public schools Police and fire departments Recreation (parks, trails) ?

7. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona “You are better off being in a community than by yourself” As a community member you receive many benefits you could not pay for individually Taxes are a way members of a community provide for one another

8. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona How do you benefit from taxes? 1.Make a list of things you use or benefit from that were funded, at least in part, by taxes 2.How do these items contribute to your well-being? 3.What would you do if you didn’t have these items? Physical Intellectual Emotional Social Financial

9. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona How do taxpayers pay taxes? Income Tax Payroll Tax Property Tax Sales Tax Excise Tax

10. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Income tax Income tax - tax on earned and unearned income Earned income - money earned from working for pay Unearned income - income received from sources other than employment Example: Wages and salaries earned from employment Example: Interest earned from a savings account

11. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Components of income tax Federal income tax State income tax Income tax

12. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Federal Income Tax Tax is determined by? Paid by?Helps fund? Earned and unearned income Higher income = more tax paid Majority of people living in the U.S. Operations of federal government Government programs education defense of the nation disaster relief

13. 2.2.2.G1 Progressive Taxes Federal income taxes are progressive. Progressive taxes take a larger share of income as the amount of income grows.

14. 2.2.2.G1 Progressive Taxes How it works / example: –Federal income tax in America is considered a progressive tax. There are income tax-brackets to assure this.

15. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona State Income Tax Tax is determined by? Paid by?Helps fund? Does your state have state income tax? Earned and unearned income Higher income = More tax paid Those living in states with a state income tax Not all states have a state income tax Varies by state Examples: State highways Operations of state government

16. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Payroll Tax Payroll tax – A tax on earned income that supports the Social Security and Medicare programs (also known as FICA) Tax is determined by? Paid by?Helps fund? A set percentage of earned income Deducted out of paycheck (except for self- employed) Individuals who earn income from working for pay Employers Social Security program Medicare program

17. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona What is Social Security? PurposeTax charged Income for: Retirees People with profound disability Children who have lost a parent A person with children who has experienced the death of a spouse 6.2% of earned income (decreased to 4.2% for 2011-12) Up to an annual maximum

18. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona What is Medicare? PurposeTax charged Helps pay for health care for senior citizens 1.45% of earned income No limit

19. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Employers also pay Social Security and Medicare Match their employees tax contributions Self-employed people pay both the employee and employer contributions Employee contribution: $100 Employer contribution: $100 Employer pays $200 in payroll taxes to the federal government

20. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona What is the difference between income tax and payroll tax? Income TaxPayroll Tax Paid on both earned and unearned income Paid on only earned income Amount paid depends on many different factors but increases as income increases A set percentage of earned income is paid Funds many different operations and programs of the federal government Funds the Social Security and Medicare programs

21. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Property Tax Property tax - a tax on property, such as land, buildings (including homes), and motor vehicles Tax is determined by? Paid by whom?Helps fund? Percentage of property value Amount paid varies depending upon where you live Property owners o Fee to license car is a property tax Schools Expenses of state and local governments

22. 2.2.2.G1 Proportional Taxes Property taxes are proportional. Proportional taxes, or flat taxes, are taxes for which the rate stays the same, regardless of income.

23. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Sales Tax Sales tax – tax on purchased goods and services Tax is determined by? Paid by?Helps fund? Does your state have sales tax? A percentage added to the original price of an item $1.00 item charged 6% sales tax = $1.06 Anyone who purchases an item charged with sales tax Some states don’t have sales tax Expenses of state and local governments

24. 2.2.2.G1 Regressive Taxes Sales tax is an example of a REGRESSIVE TAX Regressive taxes take a smaller share of income as the amount of income grows.

25. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Excise Tax Excise taxes – taxes collected from the seller or retailer and as such often remain hidden in the price of a produce or service Tax is determined by? Paid by?Helps fund? Purchase of certain items: Gas Hotel rooms Airline tickets Cigarettes Alcohol Often included within the price of these items Anyone who purchases certain items Varies by location Expenses of state and local governments

26. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona How are tax rates determined? Determined by public representatives (city councils, county commissions, state legislatures, Congress) Elected by voters Taxpayers = voters Work as a voting group to elect representatives who will represent the majority

27. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Taxes and Money Management Why do you think understanding taxes is an important part of money management? Taxes play a role in both earning and spending One of the largest expenses for many people

28. 2.2.2.G1 © Take Charge Today – August 2013 – The Basics of Taxes – Slide 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Summary Without taxes it would be hard to pay for many of the benefits of being a member of a community Taxes are charged in many different forms The amount of taxes you pay and what you pay those taxes on will vary depending upon where you live and your income Understanding taxes is an important part of money management