Ch.5 Taxes: How Much of Your Income Will You Keep? 5.1 Taxes and Your Paycheck 5.2 File a Tax Return 5.3 Taxes and Government 5.4 Government and Spending

5.1 Taxes and Your Paycheck 5.1 Vocabulary Words Directions: Write each word with the full definition. Then write a sentence using the vocabulary word. Payroll tax – Income tax – Federal Insurance Contributions Act (FICA) – Withholding -

5.1 Taxes and Your Paycheck 5.1 Vocabulary Words Directions: Write each word with the full definition. Then write a sentence using the vocabulary word. Payroll tax – Income tax – Federal Insurance Contributions Act (FICA) – Withholding -

5.1 Taxes and Your Paycheck Payroll Taxes Are placed on income earned by ________ Amount based on individual’s total earnings & tax laws that apply to type of income Paid to government by individual employees and their ________________________ Income taxes – pay on most types of income you receive. Not a fixed ________________________ Share varies, depending on each taxpayers financial & family situation In 2008, ranged from 10 – 30% FICA – law that requires workers and their employers to contribute to Social Security and ____________________________ Withholding Income withheld from paycheck goes to prepay federal income tax & social insurance _____________________ Makes sure government collects taxes at steady rate & more likely people will pay taxes Your Paycheck Stub Shows gross income & withholding Gross Income – Net Income – Shows what else was withheld

5.1 Taxes and Your Paycheck Allowances worksheet provided with W-4, tells how to calculate # of allowances to ___________________________ More __________________ claimed, smaller amount withheld will be Will not change amount of taxes owed If do not pay enough in taxes, then owe at end of year Adjusting Your Allowance W-4 does not consider special situations Withholding Too Much Students often have too much withheld because work more during summer Summer you may work 40 hrs so percentage based on that for whole ________________ Withholding Too Little Allowance calculated may result in too little _________________________________ Can avoid paying large bill by: Sending extra tax payments to the IRS Claiming fewer allowances Specifying extra amount to be withheld from each paycheck on your ___________ Form W-4 Fill out when you are hired for a job Required by __________________ Gives info needed to determine correct amount to withhold from check Your Responsibility for Proper Withholding You’re responsible for consequences if form is ______________________ If amount paid to government not enough, then you owe at end of year Wkst. – fill in W-4 form

5.1 Taxes and Your Paycheck Over withholding as a Way to Save Some choose to “over withhold” as a way to _________________ Claiming too few allowances means a refund at end of year Not good from financial point of _______________________ Because if you put that money in a savings account, you make money or interest off of it. Reduce withholding to be more in line with what owed by claiming additional _____________________ Goal – make withholdings almost exactly equal to what you ____________ Home Work – p. 162, Questions #1 - 7

5.2 File a Tax Return Tax Return – Form W-2 – Form 1099-INT – Form 1040EZ Dependent

5.2 File a Tax Return 15. Deduction – 16. Social Security Number – 17. Taxable Income -

5.2 File a Tax Return Income tax forms Your Income Tax Return If you have income, you must file a tax ________ Income more than just wages All income you receive is ________________ A tax return is a set of forms to calculate obligations Not required to fill out if earned less than minimum ______________________ Shows whether you owe the government or they owe you Sources of Information for Your Tax Return Form W-2 Must have from employer by January 31st Will get for each job you hold for the fiscal _______________ When filing, you get a copy and the IRS gets a copy If you do not file, IRS will let you ________ Form 1099-INT Will receive from bank stating what interest you earned from _________ __________ This is all a younger person usually needs Income tax forms The EZ way – must meet __________ You are single or married filing jointly with your spouse No __________________ You and spouse under ________ Neither you or spouse are blind Have taxable income of less than $_____________________ Earned no more than $1,500 in interest You had no income other than wages, interest, tips, scholarships, or unemployment ___________ Form 1040A & 1040 May use if : Older Have children Invest in stock __________ Allows you to list or itemize deductions to reduce amount you owe http://www.ehow.com/video_22597 967_file-1040ez-dependents- worksheet.html

5.2 File a Tax Return How to Complete a 1040EZ Identify Yourself Need name, address, and social ___________ _____________ Below ID number, is checkbox presidential elections – check box to contribute to ______________ Income Total Wages, Salaries, & Tips Income received for over one _______________ Calculate total earnings from all W-2 forms Taxable Interest Income Fill in amount of interest reported on your ___________________ Unemployment Compensation Fill in amount of any unemployment compensation received Adjusted Gross Income Add income from lines 1, 2, & 3 together = adjusted ___________ _____________ Record on line 4 Determine Your Deduction If parents claim you as dependent, you cannot claim If no one else claims you, enter the amount ____________________. Forms allow tax payers to deduct those they support Reduces amount of income on which they must pay ________________ Standard deduction – amount that all tax payers may subtract from adjusted gross income Amount varies according to filing status The form will tell you what to do depending on filing ______________________

5.2 File a Tax Return Total Payments Your Taxable Income Line 5 subtracted from adjusted gross income = __________ __________ This is the income figure used to determine your taxes Payments and Tax Federal Income Tax Withheld The next step on form that goes on line 7 Total withholding for year is in box 2 on your ____________ for each job If had more than one job, need to add up all of box 2’s Earned Income Credit Use if have low _______________ Use line 8a Treated as if an additional tax _______________________ www.youtube.com Total Payments Line 9 – will add withholdings and earned income ________ Result is total amount of taxes already paid Tax - http://www.irs.gov/pub/irs- pdf/i1040tt.pdf 1040EZ contains table that tell you your total tax for year Taxable income recorded on line _____________ On table, locate two numbers within your _____________ income falls. Then find, in the next column, what applies to youof a

5.2 File a Tax Return Math of Money, p. 169 Use the tax table on p. 168. Your W-2 form reports that you made $35,539. Your W-2 form also reports that $4,053 was withheld from your wages for federal income tax. You receive a 1099- INT from your bank that tells you your interest income was $281. You are single and are not claimed by any other person as a dependent. 1. How much is your adjusted gross income? _______ + ________ = ______ 2. How much is your taxable income ________ - ________ = ______ *Use this answer to do answer # 3 3. What is your total tax for the year *use the tax table on p. 168 What is the amount of your payment or refund? _______ - ________ = ______

5.2 File a Tax Return Refund Sign Here Deposit Your Refund Electronically have option of depositing electronically into checking or savings ________________ You need the routing number, banks electronic address for fund transfers, to have directly deposited Also need savings/checking _________________ Amount You Owe If withholding is less than tax calculated for line 10, you would record number on line 12. This is amount you _________________ Sign Here Must sign name with ___________ hand writing Must write in date When signing, saying that you are who you say you are Check for Accuracy and File Your Return If a mistake is made, then you may have to pay a penalty or receive a lower ____________________________ If owe money, write a check to IRS or give credit card number If paying with credit card, may be charged additional fee of __________% The due date is April _______ unless falls on Sunday or a holiday

5.2 File a Tax Return Self-Employment Tax Schedule C People who work for themselves pay ___________ _______ Paying on a Quarterly basis Must earn more than $400 in a year Must use form ______________ Must pay every 3 months Up to you to remember to pay Schedule C Required to attach schedule C because of limited _____________ Must keep detailed records of business expenses The amount determined as net of loss on form written on line 12 of _____________________ Self-employed pays same taxes as __________________________ Difference is self-employed have to withhold their taxes and pay ________________________

Assignment: Do questions 1 – 6 on page 172 5.2 File a Tax Return Electronic Filing May file _________________ More than 60% filed online in 2006 Takes 3 weeks or less to get refund ______________ Can purchase software to do it on own(ex. Quicken, Tax Pro) There are also ______ ______ Can get tax refund loan They give you less than ____________ from refund, and take whatever you owe when comes in Assignment: Do questions 1 – 6 on page 172

5.3 Taxes and Government Sales Tax - Property Tax – 20. Excise Tax – 21. Estate Tax – 22. Gift Tax

5.3 Taxes and Government 23. Business or License Tax – 24. Customs Duty or Tariff -

5.3 Taxes and Government Social Security and Medicare Contributions to Social Security FICA regulations – wages taxed at _________ Collected on gross income up to max level & adjusted for inflation each year 2008 – maximum income taxable was $____________________ Contributions to Medicare 1.45% taken total percentage for both is __________% Employers Contribution Match ___________________ for each dollar up to max of 15.3 cents – employee=7.65, employer=7.65 _____________must pay all of 15.3 cents half payments can be subtracted from adjusted gross income to reduce income taxes Sources of Government Revenue

5.3 Taxes and Government Classifying Taxes Taxes and Income Three different ways to group taxes _________________ Every taxpayer should be treated equally Benefit Principle – those who use gov’t services should pay for it(ex. Toll road) Ability-to-pay principle – larger income pays larger share Ex. Fed. Gov’t – range ___ - ____% based on amount made Taxes and Income Progressive taxes Take larger share of larger incomes, ex. Salary went from ________ to ___________ Regressive Taxes Take smaller share of higher incomes than ___________ Ex. Louisa make 16,000 per year, Ray makes 45,000 per year. Both buy cars for 10,000 at .08% sales tax. This takes 5% of Louisa’s income vs. 1.8% of Rays Proportional Taxes take same share of all ______ No perfect examples of this in our country The only difference between the three is the ____________ of different incomes that it takes

5.3 Taxes and Government How Taxes are Collected Type of Taxes Direct Taxes – income and property paid directly to ______________ Indirect Taxes – taxes included in the cost good or __________ = rent Pay-as-You-Earn Taxes – paid as you earn income, ex = Federal Withholding taken out at every ________________________ Type of Taxes Income Taxes – states and cities impose income taxes patterned after Federal System Difference is tax _______________ 2. Sales Taxes – taxes added to the price of goods & services at time of _________________ Percentage of cost of each purchase Paid when ___________ food, gas, etc… Divided between local and state governments Property Taxes – tax on value of real property Gov’t estimates value of land, structure, etc… Tax is percentage of _____________ Used by local governments & schools Can be added to house _____________(called escrow account)

- Answer questions on p. 178, #1-4 5.3 Taxes and Government Excise Taxes – collected on sale of specific goods and ______________. Ex. Tobacco, gasoline, & alcohol Included in the price Estate and Gift Taxes Estate – when a person dies, property may be inherited by those legally ________to the estate Only estates of a certain amount and higher are _____________________ Gift – giver of gifts may have to pay if $12,000 or over as of 2008. Tax increased at times due to inflation Business and License Taxes To operate certain businesses, must have license, permit, or stamp. Tax is paid for certification, which may have a ___________ (ex. Doctors, etc…) Customs Duties and Tariffs taxes to control the flow of products imported into the ________________ Imposed on some imports Results in some items from abroad to be sold at _____________ prices than they otherwise would be Assignment - Answer questions on p. 178, #1-4

5.4 Government Spending The Power to Influence Government Spending Used to influence consumers’ buying _________________ Taxing means fewer people will buy it Example – “Sin” taxes on legal goods that are bad for your health. What item is taxed like this? ____________________ Tax Cuts Lower taxes = more beneficial choices In 2008, President Bush led congress to give a tax rebate to encourage consumers to ____________________ High unemployment areas reduced property taxes for businesses Can also deduct because donated to ________________________ Government Spending Federal gov’t spends or transfers more than $2.65 ____________ each year State & local spend half as much Your cost = $___________ per year Most spending pays for goods and services that benefit all Americans Public Goods – roads, schools, national defense, etc… Federal tax dollars used in ____ major areas Vocab Definition & Sentence 25. Public Good -

5.4 Government Spending Types of Federal Spending Debt Reduction Social Security, Medicare, and other retirement programs - _____% National Defense – ______% Social Programs, such as food stamps and unemployment – _______% Physical, Human, and community development(education, general science, & space program) – __________% Interest on National Debt – ______% Law Enforcement & general government – ____% Debt Reduction Late 1990’s thru early 2000’s had tax _______ used to pay down national debt By 2002, fed. Gov’t spending more

5.4 Government Spending Assignment What State and Local Governments Provide Building and maintaining ________ Operating police and fire ________ Maintaining a criminal justice system Building and staffing schools Building and operating state colleges and _____________ Supporting medical facilities Constructing and operating sewage treatment ____________ Operating unemployment compensation ________________ State and Local Government Regulations Enforce many rules and _______ Example: driver’s license, building permit Create order and safety in states and local _________________ Assignment P. 183, #1-8