Presentation on theme: "Lesson 2-3 Taxes and Other Deductions - List the required and optional deductions from gross pay. - Explain the contents of commonly used federal tax forms."— Presentation transcript:
Lesson 2-3 Taxes and Other Deductions - List the required and optional deductions from gross pay. - Explain the contents of commonly used federal tax forms.
Bell Ringer Why would you have to file a federal tax return?
Payroll Deductions Your pay is reduced by required and optional deductions. Some deductions, like taxes, lower your disposable income. The higher your taxes, the less money you have to spend. Required Deductions are income tax, social security tax, and Medicare tax. Gross pay is your total salary or wages earned during a specific period. Deductions are subtracted from your gross pay. The amount left is your net pay. Net Pay = Gross Pay - Deductions
Required Deductions Federal and State income taxes are withheld according to the amount of income and the number of exemptions claimed on W-4. An exemption is a person you claim on your tax return as a dependent. A dependent is a person who depends on you for more than half of his or her support. The more exemptions you have, the less tax is withheld. Social Security Tax is a percentage of your gross pay. Social Security provides a system of old-age, survivors, and disability insurance The rate is 6.2% on earnings up to $106, 800. The employer has to match this amount. People who are self-employed pay 12.4% on earnings up to $106,800. Medicare tax is a percentage of your gross pay Medicare is collected to pay for medical care for retired persons age 65 and older The rate is 1.45% on all earnings. The employer has to match this amount. People who are self-employed pay 2.90% on all earnings.
Worker’s Compensation Insurance An insurance plan that pays medical and disability benefits to employees who are injured or contract diseases on the job. Benefits may be paid to the employee’s family if the employee is killed on the job. In some states, the employer covers the entire cost of worker’s compensation insurance. In other states, the cost is shared by the employer and employee
Optional Deductions Health Insurance Life Insurance Disability Insurance Dental Insurance Vision Insurance Flex 125 plan Long-term care insurance Savings Plan Retirement Plan Health Savings Account Stock Purchase Plan Charitable Donations
Form I-9 Employers are required to verify that workers are eligible to work in the U.S. When workers begin a new job, the worker is required to fill out a form I-9, Employment Eligibility Verification.
Tax Forms All tax forms are available at www.irs.govwww.irs.gov W-2 shows an employee’s taxable income and withholdings for the year.
Filing a Federal Tax Return 3 Forms – 1040EZ, 1040A, or 1040 Form 1040EZ A short tax return form designed for use by single and joint filers with no dependents or itemized deductions. Form 1040A A two-page form that allows more options for income and deductions to be entered. Use this rather than a 1040EZ if you have more then $1,500 in interest income. Form 1040 Long Form, is used by many taxpayers. Use this if: Married but want to file separately Want to itemize deductions If you have business income, rents, or royalties Used for special types of income or deductions such as capital gains or foreign investment options
Do you have to file a Federal Tax Return? Yes, if: You made more than $10,150 You had federal or state income tax withheld
E-Filing E-filing is a fast, safe way to file a federal tax return electronically. Filers who have $57,000 or less of adjusted gross income can use the IRS’s Free File program to prepare and file tax return online for free Using e-file provides fast results. Refunds are often received much more quickly than when a paper return is filed.
Assignment Pg. 70 – Answer questions 1-20 – Due Wednesday, January 21