TAXES Are taxes necessary in society? How do taxes impact our lives Essential Questions Are taxes necessary in society? How does the government collect taxes from its citizens? How do taxes impact our lives (Tax, income tax, sales tax, property tax, W-2, W-4, I-9, 1040 EZ, IRS, tax bracket, payroll deductions, tax evasion, tax avoidance, tax deductible, tax credit, dependent, allowance) “Taxes are what we pay for civilized society” Oliver Wendell Holmes Jr., 1904 Taxes are a necessary part of life in the United States. Although taxation has often received a less than favorable review by taxpayers, the benefits of taxation are positive. What do you think is meant by this quote? Do you agree with it? (Answers will vary.)

Taxes: Required charges imposed on citizens by local, state, & federal governments. Used to provide public goods and services. Sales Tax: Tax on sale of items - (regressive) Income Tax: Tax on earnings - (progressive) Property Tax: Tax on property (Ex. land, cars) Capital Gains Tax: Tax on sale of assets (Ex. stocks) Gift Tax: Tax collected on money/property valued over $11,000 Estate Tax: Fed. tax on value of someone’s property upon death Internal Revenue Service (IRS): Collects federal taxes Enforces tax laws written by US Congress.

Government Taxes Where it goes Surplus to Pay Down the Debt 6% Law Enforcement and General Government 2% Social Security, Medicare and other Retirement 36% Where it comes from Social Programs 18% National Defense, Veterans and Foreign Affairs 18% Personal Income Taxes 50% Community Development 10% Interest on the Debt, 10% SS, Med, & unemployment 35% Excise, customs, estate, gift, and miscellaneous Taxes 8% Corporate Income Taxes 7%

Taxes Fund Public Goods and Services Health Care for Elderly National Defense Social Services State and Local Police Public Education Financial Aid

Sales Tax A sales tax is a tax, usually paid by the consumer at the point of purchase for certain goods and services. % of value * Dif. states & cities have different tax rates that vary depending on item Excise Tax: applied to select group of products like gas Alcohol & tobacco (sin tax)

Property Taxes Levied on property, especially real estate - If value of property goes up, so does tax Can also be levied on cars, boats, RVs Fund schools, local services, welfare programs

Federal & State Income Taxes Come from earned and unearned income (1099 Form) Levied on individuals and corporations Support federal & state expenses, education programs, welfare, national defense, police & fire, roads… The more you make, the higher percentage you pay

Married filing jointly or qualifying widow/widower 2011 Tax Brackets Tax rate Single filers Married filing jointly or qualifying widow/widower 10% Up to $8,500 Up to $17,000 15% $8,501 - $34,500 $17,001 - $69,000 25% $34,501 - $83,600 $69,001 - $139,350 28% $83,601 - $174,400 $139,351 - $212,300 33% $174,401 - $379,150 $212,301 - $379,150 35% $379,151 or more

I have a job, now what???? W-4 1. Complete a W-4 Form (Employee’s Withholding Allowance Certificate) Used to determine the amount of federal taxes withheld from the paycheck Claim how many dependents you have The more allowances you have, the more of your paycheck you may keep (allowances or dependents allow you to keep more of your money = pay less tax) Dependent: Person who relies on the taxpayer for financial support

Pay-As-You-Go Withholding Taxes are paid as income is earned Taxes are withheld based on Form W-4 information

2. Complete an I-9 Form (Employment Eligibility Verification) Employment Eligibility Verification Form Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United States Must provide documentation which establishes identity and employment eligibility Examples include driver’s license, passport, Social Security card, and birth certificate

Ways you may be paid Paycheck: Check for salary or wages made out to an employee Employee must deposit/cash check Check and paystub given to employee 2. Direct Deposit: Electronic transfer of an employee paycheck by an employer Automatically puts paycheck into employee designated account Paystub may be given or accessed electronically Secure & quick

Employee Pay How often you are paid? Pay Period : Weekly: 52 per year Bi-weekly: 26 per year Semi-Monthly: 24 per year Monthly: 12 per year How are people paid? Hourly: based on # hours in period Overtime: Hours worked beyond the regular work week. Salary: Fixed amount paid each pay period regardless of hours worked. Commission: Amount made based on percentage of employee sales. Standard workday: 8 hours Standard work week: 40 hours.

What happens to my money?? About 1/3rd of more of your paycheck will go to taxes Taxes are immediately paid on income earned Your Paycheck Percent Multiply by Federal Income Tax 10%-35% .1-.35 State Income Tax 1%-6% .01-.06 Social Security Tax 6.20% .062 Medicare Tax 1.45% .0145 TOTAL 18.45%- 48.65% .1845-.4865 http://www.bankrate.com/calculators/tax-planning/hourly-paycheck-tax-calculator.aspx

Paycheck Stub Employee Beakens, Joe SSN 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Social Security Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Document included each pay period which outlines deductions

Form W-2 Shows how much employees earn Copy must be attached to tax return

Tax Avoidance versus Tax Evasion Tax Avoidance: Legal means of decreasing your tax bill Tax Evasion: Failure to pay legally due taxes

Tax Breaks Deductions: Reduce income subject to tax Exemptions: Part of income that isn’t taxed Credits: Dollar for dollar reduction in tax