Objectives: ◦ Understand payroll taxes and withholdings. ◦ Be able to analyze a paycheck stub and W-4.
Payroll Taxes – taxes based on the payroll of a business ◦ Payroll taxes are paid by both the employer and employee ◦ Included income taxes and social insurance taxes Income taxes ◦ Taxes you pay on most types of incomes. Interest, profit from investments, dividends ◦ April 17 th deadline ◦ Only two sure things in this world?
Federal Withholding FICA (Federal Insurance Contributions Act) ◦ Law requires workers to contribute to social security and Medicare. social security 6.2% up to 117,000 salary for employees 6.2% for employers Medicare (1.45%) State Tax Local Tax Local Services Tax ($52 a year) Unemployment Tax
Withholding – money withheld from your paycheck goes to prepay your federal income tax and social insurances.
Gross Income – Amount before taxes are taken out. High number. Net Income – Amount you receive after withholdings are subtracted from your gross paid. Stub should show itemized deductions (taxes, payroll, insurance, retirement)
Provides the information your employer needs to determine the proper amount to withhold from you paycheck. If the information is wrong you are responsible for the payments. IRS will come knocking.
Allowances – A number that reduces the amount of money withheld from your pay. ◦ More allowances the less you pay in taxes. ◦ Children and spouse
Too Much – You do not get interest on the money. Interest free loan to the government. ◦ Nice refund check at the end of the year Too Little – Possible large tax bill or fine. Interest free loan from the government. ◦ How does this happen? Having a side job Claiming more allowances Interest
Tax Return- set of forms that taxpayers use to calculate their tax obligation. Calculate if you paid too much or not enough taxes throughout the year. Income ◦ Wages ◦ Tips ◦ Interest ◦ Dividends ◦ Stock profits
W-2 W-2 ◦ Summary of your earnings and withholding for the year for a job ◦ Sent in with your tax return ◦ Employer send theirs in also 1099-Int 1099-Int ◦ Statement of interest your bank paid you
Form 1040EZ (Simplest form to report)1040EZ ◦ Criteria Single or married filling jointly You have no dependents Under the age of 65 You are not blind Taxable income is less than $100,000 You earned no more than $1,500 in interest No other income than wages, interest, tips, scholarships, or unemployment.
Sales Tax – Taxes added to the price of goods and services at the time of purchase (PA 6%, DE None) Property Tax – taxes on the value of real estate property. (School, county) Excise Tax – Specific goods and services (Tobacco, gas, hotels) Estate Tax- Property which will be received by those legally entitled to the estate.
Gift Tax- Tax on a give more than $10,000 Business Tax – Paid to operate a certain kind of business (Garbage) Corporate Tax – 15 to 35 percent on profit. ◦ Graduated Scale ◦ Most levels are in the 33 to 35 % range