1. Federal Taxes

2. Individual Income Taxes
“Pay-as-You-Earn” Taxation
Tax Withholding
Federal income taxes are collected throughout the course of the year as individuals earn income.
Withholding is the process by which employers take tax payments out of an employee’s pay before he or she receives it.

3. What Does the Pay Stub Show Us?
What percentage of this worker’s pay was withheld for federal taxes?
What percentage of this worker’s pay was withheld for total taxes?

4. Tax Brackets The federal income tax is a progressive tax.
In 1998, there were five rates, each of which applied to a different range of income.

5. FEDERAL INCOME TAX RATES
SCHEDULE
IF YOUR TAXABLE INCOME IS OVER-$
BUT NOT OVER-$
THE TAX IS
OF THE AMOUNT OVER-$
SCHEDULE X-
USE IF YOU ARE FILING STATUS IS SINGLE
27,050
***** 15%
65,550
$4, PLUS 28%
136,750
$14, PLUS 31%
297,350
$36, PLUS 36%
********
$94, PLUS 39.6%
SCHEDULE Y-
USE IF YOUR FILING STATUS IS MARRIED FILING JOINTLY
45,200
*****15%
109,250
6,780,000 PLUS 28%
166,550
24, plus 31%
42, plus 36%
*******
89, plus 39.6%

6. Paying Taxes
A single individual with $20,000 of taxable income would pay _______ in taxes.
A married couple filing jointly with $75,000 of taxable income would pay ________ in taxes.

7. Filing a Tax Return
A tax return is a form on which you declare your income to the government and determine your taxable income.
Taxable income is a person’s total (or gross) income minus exemptions and deductions.

8. Exemptions and Deductions
Set amounts that you subtract from your gross income
Examples:
Yourself
Your spouse
Any dependents.
Variable amounts that you can subtract from your gross income.
Examples:
Interest on a mortgage
Donations to a charity
Some medical expenses

9. Corporate Income Taxes
Like an individual, a corporation must pay a federal tax on its taxable income.
Corporate income taxes are progressive
As a company’s profits increase so does the amount paid in taxes.

10. Social Security and Medicare (Removed Through Federal Insurance Contributions Act (FICA) Tax)
This program is funded by the Federal Insurance Contributions Act (FICA).
Most of the FICA taxes you pay go to
Social Security
Disability Insurance (OASDI)
Medicare is a national health insurance program that helps pay for health care for people over 65 and for people with certain disabilities.
Medicare is also funded by FICA taxes.

11. Unemployment (Removed Through Federal Insurance Contributions Act (FICA) Tax)
Unemployment taxes are collected by both federal and state governments.
Workers can collect “unemployment compensation”
They are laid off through no fault of their own
They are actively looking for work.

12. Other Types of Taxes Excise Taxes
An excise tax is a tax on the sale or production of a good. Federal excise taxes range from gasoline to telephone services.
Estate Taxes
An estate tax is a tax on the estate, or total value of the money and property, of a person who has died. Estate taxes are paid before inheritors receive their share.
Gift Taxes
A gift tax is a tax on the money or property that one living person gives to another. Goal was to make sure people paid taxes on what they were giving away before they died. Today, one can give up to $10,000 tax free per year.
Import Taxes
Taxes on imported goods are called tariffs.