Taxes Source: http://apps.irs.gov/app/understandingTaxes/teacher/downloads.jsp

for civilized society.” What does this mean? “Taxes are what we pay for civilized society.” -Oliver Wendell Holmes, Jr. 1904

Taxes Fund Goods and Services

The Power to Tax

Where Federal Taxes Come From

Where State Taxes Come From

Where Federal Taxes Go

Where State Taxes Go

“John’s” Paystub Gross Pay $2,000 Social Security Tax (6.2% of Gross Pay) - $124.00 Medicare Tax (1.45% of Gross Pay) -$29.00 Income Tax (based on information on Form W-4) -$237.00 State Taxes -$50.00 Net Pay (also know as “Take-Home Pay” ) $1,560.00 John earns $2,000 gross pay and receives a net paycheck for $1,560 His employer sends $390 ($124 + $29 + $237) to the federal government and $50 to the state for taxes.

Form W-4 States your marital status, number of withholding allowances, any additional amount the employee wants to withhold, and exemptions Taxes are paid each time you get paid

Form W-2 Shows how much an employee earned and paid in taxes for the year Form W-2 is attached to tax return

How much was paid in taxes? Add Box 2, Box 17, and Box 19 together. $15,851 + $5,344.5 + $1,092 = $22,287.50

Education Tax Credits American Opportunity Credit – Up to $2,500 credit per eligible student Lifetime Learning Credit – Up to $2,000 credit per return

Financial Record Keeping Save– Paycheck stubs, bank statements, receipts, completed tax form, tax returns Store Items in – envelopes, folders, a filing cabinet, or safe

Methods of Tax Return Preparation Electronic Tax Preparation Software Manual (paper version)

Tax Vocabulary Tax Evasion: Failure to pay legally due taxes Tax Avoidance: Legal means of decreasing your tax bill. Medicare Tax: used to provide medical benefits to persons from 65 on Social Security Tax: provides benefits for retired workers and their dependents

Tax Vocabulary Refund: when tax payments are greater than the total tax, you get that amount back Amount Due: when the total tax is greater than the total tax payments, you owe money to the IRS. Deductions: Reduce the amount of income that is taxed Credits: Dollar for dollar reduction in tax

Tax Simulation (Time Permitting) Click here to practice filling out Form 1040EZ

On Your Own (Next Class Period)