1. CHAPTER 5 TAXES How Much of Your Income Will You Keep?
Economic Education for Consumers
4/27/2017
CHAPTER 5 TAXES How Much of Your Income Will You Keep?
WHAT’S AHEAD
5.1 Taxes and Your Paycheck
5.2 File a Tax Return
5.3 Taxes and Government
5.4 Government Spending
CHAPTER 5

2. LESSON 5.1 Taxes and Your Paycheck
GOAL
Describe payroll taxes and factors that determine withholding.
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3. KEY TERMS payroll tax income tax
Federal Insurance Contributions Act (FICA)
withholding
gross income
net income
Form W-4
Internal Revenue Service (IRS)
allowance
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4. KEY TERMS
payroll tax – a tax placed on income earned by individuals. (Note: the federal gov’t receives the largest part of its revenue from payroll taxes).
income tax – a tax you pay on most types of income you receive (including what you earn at work and other income).
Federal Insurance Contributions Act (FICA) – the law that requires workers and their employers to contribute to Social Security and Medicare.
withholding – the method by which your employer collects payroll taxes from your wages.
gross income – the amount you earn before taxes are withheld.

5. KEY TERMS
net income – the amount you receive after withholdings are subtracted from your gross pay.
Form W-4 – provides information your employer needs to determine the proper amount to withhold from your paycheck.
Internal Revenue Service (IRS) – the federal agency that collects income taxes.
allowance – a number that reduces the amount of income withheld from your pay.

6. Payroll Taxes Income taxes
FICA, or contributions to Social Security and Medicare
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7. Withholding Your paycheck stub Form W-4 Gross income Net income
Your responsibility for proper withholding
Allowances
Adjusting your allowance
Overwithholding as a way to save
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8. Checkpoint 5.1
What are payroll taxes and how is the amount that is withheld from income determined?
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9. Checkpoint 5.1 answer
What are payroll taxes and how is the amount that is withheld from income determined?
Payroll taxes are calculated according to income as it is earned and paid by employee, employers, or both.
The amount that is withheld is based on the employee’s level of income and information provided on the W-4 form completed by the employee.
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10. LESSON 5.2 File a Tax Return
GOALS
Identify sources of information you need to complete your income tax return.
Complete a federal Form 1040EZ.
Describe how taxes differ for a self-employed person versus an employee.
Explain why more than half of individual income tax returns are filed online.
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11. KEY TERMS tax return Form W-2 Form 1099-INT Form 1040EZ dependent
deduction
Social Security number
taxable income
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12. KEY TERMS
tax return – a set of forms that taxpayers use to calculate their tax obligation.
Form W-2 – a summary of your earnings and withholdings for the year.
Form 1099-INT – a statement of the interest your bank paid on your savings for the year.
Form 1040EZ – the simplest form for filing federal income tax returns. (Note: most young people qualify to use this form).

13. KEY TERMS
dependent – people you support financially, such as children.
deduction – expenses you can legally subtract from your income before calculating your taxes.
Social Security number – a unique number assigned to you by the federal government.
taxable income – the income figure that is used to determine your taxes.

14. Sources of Information for Your Tax Return
Form W-2
Form 1099-INT
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15. Income Tax Forms Form 1040EZ Form 1040A or 1040
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16. How to Complete a 1040EZ Identify yourself Income Payments and tax
Refund
Amount you owe
Sign
Check for accuracy and file your return
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17. Self-Employment Tax Paying on a quarterly basis Schedule C (1040)
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18. Electronic Filing Advantages of electronic filing Filing options
Shorter processing time
Faster refund
Filing options
IRS web site
Tax preparation software
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19. Checkpoint 5.2
What tax information is provided to you by your employer and your bank?
What information do you need to calculate the amount of additional tax you owe or refund that is owed to you using a Form 1040EZ?
What are the differences in the way traditional employees and self-employed people pay their taxes?
How can you file your tax return online? What is the advantage of filing online?
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20. Checkpoint 5.2 answers
What tax information is provided to you by your employer and your bank?
Employers provide Forms W-2, which summarize earnings and withholdings.
Banks provide Forms 1099-INT, which summarize interest income.
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21. Checkpoint 5.2 answers
What information do you need to calculate the amount of additional tax you owe or refund that is owed to you using a Form 1040EZ?
Amount of your earned income
Interest income
Income tax withholdings
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22. Checkpoint 5.2 answers
What are the differences in the way traditional employees and self-employed people pay their taxes?
Taxpayers who work for an employer have their taxes deducted each pay period.
Self-employed taxpayers calculate the amount of tax they owe each quarter and pay that amount to the government.
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23. Checkpoint 5.2 answers
How can you file your tax return online? What is the advantage of filing online?
Use your tax preparation software to enter your tax information electronically or pay a tax service to do it for you.
Online filing generally allows you to get your tax refund faster.
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24. LESSON 5.3 Taxes and Government
Objectives: By the end of class, students will be able to:
Describe where the federal government gets the money it spends.
Explain principles and types of taxation.
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25. KEY TERMS Sales tax Property tax Excise tax Estate tax Gift tax
Business or license tax
Customs duty or tariff
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26. Sources of Federal Government Income for 2006
Personal income taxes 39%
Borrowing to cover deficit 9%
Excise, customs, estate, gift, and miscellaneous taxes 7%
Social Security, Medicare, and unemployment and other retirement taxes 32%
Corporate income taxes 13%
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27. Social Security and Medicare
Contributions to Social Security
Contributions to Medicare
Your employer’s contribution
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28. Principles of Taxation
Benefit principle
Ability-to-pay principle
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29. Taxes and Income Progressive taxes Regressive taxes Proportional taxes
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30. How Taxes Are Collected
Direct taxes
Indirect taxes
Pay-as-you-earn taxes
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31. Types of Taxes Income taxes Sales taxes Property taxes Excise taxes
Estate and gift taxes
Business and license taxes
Customs duties and tariffs
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32. Checkpoint 5.3
What are the major sources of revenue for the federal government?
What is the main difference between state or local taxes and federal income taxes?
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33. Checkpoint 5.3 answers
What are the major sources of revenue for the federal government?
Personal income taxes
Social Security and Medicare taxes
Corporate income taxes
Borrowing
Other taxes that include excise, customs, estate, gift, and miscellaneous taxes
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34. Checkpoint 5.3 answers
What is the main difference between state or local taxes and federal income taxes?
Federal taxes take a larger percentage of consumers’ income than do state and local taxes.
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35. LESSON 5.4 Government Spending
GOALS
Identify how taxes can influence consumer decisions.
Explain how the government spends the money it receives.
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36. KEY TERM
public good
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37. The Power to Influence “Sin” taxes Tax cuts Charities
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38. Government Spending Social Security, Medicare, and other retirement
Social programs
National defense, veterans, and foreign affairs
Physical, human, and community development
Net interest on the debt
Law enforcement and general government
Debt reduction
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39. U.S. Government Spending for 2006
2% Law enforcement and general government
36% Social Security, Medicare, and other retirement
19% Social programs
23% National defense, veterans, and foreign affairs
12% Physical, human, and community development
8% Net interest on the debt
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40. Examples of What State and Local Governments Provide
Building and maintaining roads
Operating police and fire protection services
Maintaining a criminal justice system
Building and staffing schools
Building and operating state colleges and universities
Supporting medical facilities
Constructing and operating sewage treatment plants
Operating unemployment compensation programs
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41. Checkpoint 5.4
How can taxes influence your buying decisions? How can your local government use taxes to help local workers?
Describe the categories of federal government spending. What types account for the largest part of the total?
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42. Checkpoint 5.4 answers
How can taxes influence your buying decisions? How can your local government use taxes to help local workers?
Taxes influence buying decisions by raising or lowering prices.
Local governments can lure businesses to an area by offering lower taxes to businesses willing to locate there.
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43. Checkpoint 5.4 answers
Describe the categories of federal government spending. What types account for the largest part of the total?
Types of federal spending include Social Security, Medicare and other retirement programs; social programs; national defense; physical, human, and community development; law enforcement; and payments of interest on the national debt.
More than half of total federal spending goes for Social Security/Medicare (36%) and for national defense (23%).
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