2 IntroductionIt has been proven that year olds are historically the most likely age group to forfeit their tax refund by not filing a tax return.What does this mean?They paid MORE taxes than they needed to and didn’t file to get their money back.Many teens do not understand taxes.
3 Introduction In this tax unit, you will understand… All different types of taxesWhen and why you must file a tax returnThe different forms and what they are used for.
4 Understanding Taxes There are three levels of government: Federal- Runs the country as a whole.State- Manages the 50 statesLocal- Governs counties, cities, and towns.All of these levels need money to operate, so you must pay taxes to all three.
5 The More Common Types of Taxes Income TaxYou pay taxes on your income (Money you make)Sales TaxTaxed on items you buyThis tax goes to the state or local governmentProperty TaxBased on the value of your propertyPayroll TaxSocial Security and Medicare
6 Types of Taxes: Sales Taxes Sales tax is calculated as a percentage of the price of the item.The tax rate varies from state to stateColorado sales tax is at least 2% but less than 4%As of 2008 it is 2.9%Craig’s sales tax is 2.25%About 75% of the other states have a higher sales tax percentage than Colorado (at least 5%)
7 Types of Taxes: Property Taxes One of the main source of money for local government is property taxes.These taxes are based on the value of property-generally land and buildings.Property taxes have been raised in Craig in order to pay for the new Middle School and to build a new hospital
8 Your Role As a Taxpayer Why do we pay taxes? To pay the government’s billsGovernment provides public goods and services for the communityThis is why we have TAXES!Taxes shift resources from private individuals, (you and everyone else who works) and businesses to the government.Suggested Answers include: Medicare/Medicaid and medical research, public school funding and subsidized school lunches, defense funding, social security, public roadways, police and fire protection, public libraries, job training and scientific research, bank regulation, food inspectors and Food and Drug Administration, air traffic controllers, unemployment benefits.
9 Understanding TaxesThe Internal Revenue Service (IRS): is the agency that collects federal taxes and oversees the federal systemTaxes paid to the IRS go into the U.S. Treasury.The IRS now has a website, that has all of the forms and directions you need to file your taxes.You can complete and mail these right online.
14 Different Tax SystemsRegressiveProgressiveProportional
15 Regressive TaxRegressive Tax: Everyone, regardless of income, pays the same $ dollar $ amount.What is the problem with this?Lower-income people pay a larger share of their income than wealthier people.
16 Regressive Tax Example: John makes $10,000 Susan makes $50,000 They both have to pay the same dollar amount in taxes.Let’s say they have to pay $1,000 in taxes this yearThat’s 10% of John’s total incomeIt’s only 2% of Susan’s total income
17 Regressive Tax What are some examples of Regressive Tax? Tobacco, alcohol, gasoline, jewelry, perfume, travel, licenses, parking, admission to museums and parks, tolls for roads and bridges.
18 Progressive TaxProgressive Tax: takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay.Our federal tax system today is based on the Progressive Tax.
20 Progressive Tax Example: Low-income pays 10% Middle-income pays 15% High-income pays 30%
21 Proportional Tax Proportional Tax: Each individual pays a fixed rate. Example:Low-income taxpayers would pay 10%Middle-income taxpayers would pay 10%High-income taxpayers would pay 10%What is an example of Proportional Tax?Sales TaxSales tax because all consumers, regardless of income, pay the same fixed rate.
22 The Beginning… You all have or will soon have a job. This is the beginning of paying Federal Income Taxes
23 You’ve Got a Job!What was one of the first things your employer made you fill out when you got your job?W-4 (Employee’s Withholding Allowance Certificate)What is a W-4 used for?
24 W-4 Used for your employer W-4 – is a form you fill out as a new employee so that your employer will withhold (keep) the correct amount of federal income tax from your paycheck.Employee’s Withholding Allowance Certificate
25 W-4The W-4 tells your employer how much he/she should withhold (keep) from your paycheck.Employers withhold payroll taxes and income taxesEmployers then send the amounts withheld to the federal governmentGo over W-4 now in packet…
26 W-4If you fill out a W-4 incorrectly, you may have to PAY taxes at the end of the year.You owe IRSToo little was taken out of your checksThis could happen if you filed for exemption and you ended up making more than the Standard Deduction ($5,450)OR, a mistake could mean too much tax is being taken out of your paycheckIRS owes youToo much was taken out of your checksThe closer you are to 0 for a return, the better.Why?Uncle Sam doesn’t pay interest.Do W-4 worksheet
27 Exempt from withholding? Depending on how much you expect to make for the year, you may not have to pay FEDERAL income taxes.In other words, you would be “EXEMPT” from paying federal income taxes
28 Exempt from Withholding? You are exempt from withholding if…1) You weren’t required to pay federal income tax last yearAND…2) You don’t expect to this year either.
29 Exempt form withholding? Whether you have to pay or not also relies on whether your parents or guardians CAN claim you as a dependent on THEIR tax return.What is a dependent?Dependent: a person who relies on another taxpayer for at least half of his or her supportSupport includes food, shelter, clothing, medical, dental care, and education.
30 Exempt from withholding? Most high school students can be claimed.If you live with your parents/guardians, ANDYou’re under 19 years of age,You CAN be claimedIt’s NOT whether your parents/guardians claim you, it’s whether they CAN if they want to.MOST CASES THEY CAN
31 Exempt from withholding? So…If your parents CAN claim youYou are UNDER 19 years oldOr and FULL-time studentYou EXPECT to make LESS than $5,450You can file for exemption!!!$5,450 is a standard deductionThe government allows you to deduct (subtract) $5,450 from your income.Go over Exempt worksheet from packet now…
32 STANDARD DEDUCTION Example: You made $4,000 this year Standard Deduction says you don’t have to pay taxes on $5,450 of your income (TAX FREE)Since $5,450 is LARGER than what you made, you won’t have to pay taxes(This doesn’t mean you will get a refund of $1,450 either)
33 No Way Around All TaxNo matter if you filed and qualified for exemption (free from federal income tax) or not, you STILL have to pay some taxes from your paycheck.These taxes are called PAYROLL TAXESLook at “Wahoo’s Fish Tacos” page. It shows a pay stub.
34 Payroll Taxes They include Social Security (FICA) tax and Medicare Tax THESE TAXES ARE NON-REFUNDABLEYou will not see any of this money until you start receiving the benefits of them at age 65(You may also not have social security when you’re that old)“Wahoo’s Fish Tacos”
35 Payroll Taxes Payroll taxes include… 1) Social Security tax (FICA tax) Social security provides the following:Retirement benefitsBenefits for people dependent on retired workersBenefits for the disabled and their dependents
36 Payroll Tax Payroll tax also includes… 2) Medicare Tax Used to provide medical benefits for certain individuals when they reach the age of 65Grandpa bought me a candy bar when I was a kid…Now I’m paying for his broken hip.
37 The maximum amount you can pay annually into social security is $6,045
38 Your Pay-Stub If you work 5 hours for $10/hour you would make $50 This is called your __________ incomeGROSS (Before Taxes)On payday you realize you get a check for less than $50The money you received is called your _______ income.NET (After Taxes)We have a “pay-as-you-go” tax system
39 ?Have students finish “Wahoo’s Fish Tacos” page AND the rest of the packet. (Worksheet theme 6 lesson 2 from Irs.gov and Assessment)S.S. = $124Medicare = $29Net Pay = $1577
40 NEXT SECTION…more forms!!! So far we have covered one form for taxes…W-4Review…What is the W-4 for?
41 W-2 and 1099-INTs If you had a job in 2008, you WILL receive a W-2 W-2 – is a form from employer explaining how much you made in the year.YOU RECEIVE A W-2 FROM EVERY EMPLOYER YOU HAD THIS YEAR.Remember:W-4 = 4 employerW-2 = For you
42 1099-INTs1099-INTs – Form explaining how much money you made with interest this yearExample: You put $1,000 in a savings account last year.You notice that you now have $1,020 in the accountYou made $20 of unearned incomeYou will get a 1099-INT form this month explaining you made $20 of unearned income.1099-DIV…
43 January 31st You should have all your forms by January 31st W-2, 1099INTs, 1099DIV, Student loan interest, etc…
44 Which Form Do You Use? There are 3 possible forms to use. 1040EZ 1040A
45 1040EZ The simplest IRS form (EASY) You can use this form if… 1) Your filing status is single or married filing jointly2) You’re younger than 653) You or your spouse are not legally blind4) You have no dependents5) Your interest income is less than $1,5006) Your income is less than $100,0002) Spouse must be younger than 65 as well
46 1040EZ (Good and Bad) Good – Very easy and it’s only one page Bad – Limits the number of ways to save on your tax bill
47 Next one…1040AHas more options to reduce your taxable income than the 1040EZ but is a little longer.Some of them include…Certain IRA contributionsStudent loan interestSome college tuition and feesEtc…You can’t do this on the 1040EZ
48 How the EZ could cost you The case of Joe:Finished college last year and got a full-time job making $35,000.He’s single, renting, and has no investment incomePerfect person for the 1040EZ…For Uncle Sam he isFiling the 1040EZ, Joe will likely overpay his taxes
49 How could the EZ cost you The 1040EZ doesn’t offer the same tax breaks found on the other formsThe more complicated the forms, the more tax breaks.Since Joe just graduated college, he has a student loan ($2,500)He also started a Traditional retirement account which he put in $3,000.
50 How the EZ could cost you Joe owes taxes on $35,000Joe falls into the 25% tax bracketJoe overpaid a lot on his taxes1040AJoe owes taxes on $29,500Joe falls into the 15% tax bracketJoe saved a lot on taxes
51 How to fill out the 1040EZFirst fill out your name and other personal informationOnce you do this once, the IRS will send you a booklet and peel off label with the information you used
52 How to file Line 1: Enter the amount from box one on your W-2 Line 2: More than one W-2…Add both numbers from box 1 together and enter that numberLine 2:You will get this number from the bank or other financial institution1099-INT2 or more you would add together
53 How to file Line 3: Will almost never apply to you…leave blank Line 4: Just add lines 1, 2, and 3Adjusted Gross Income: Sum of your wages and taxable interest
54 How to fileLine 5: Determine if you can be claimed as a dependent