CHAPTERS 6 7 TAXES AND YOUR PAYCHECK LEARNING

CHAPTERS 6 -7 TAXES AND YOUR PAYCHECK

LEARNING TARGETS Students can ……. 1. Explain the purpose behind payroll and other taxes. 2. Identify and define the different types of payroll & other taxes. 3. Understand the terminology associated with taxes. 4. Recognize the different tax forms. 5. Identify the information on a W-2 form. 6. Evaluate my personal records to ensure I am paying enough in taxes. 7. Prepare a 1040 EZ tax form. 8. Prepare a W-4 form.

PAYROLL TAXES INCOME TAX FICA TAX Federal State Local Social Security Medicare

“In this world, nothing can be said to be certain, except death and taxes. ” Benjamin Franklin

Payroll taxes Taken out of your pay and given to the gov’t.

Income Taxes paid based on your income and family situation.

FICA Federal Insurance Contributions Act; a law that requires you to pay for social security and medicare benefits.

You Asked For It • In 1861, Abraham Lincoln was responsible for America’s first income tax during the Civil War. • Under the 1861 law, people published their income in the paper to keep them from lying. • The law expired in 1872.

Income Tax Bill of 1913 • Part of the 16 th Amendment of the Constitution. • Allowed Congress to tax your income, except for the first $3, 000. • Today, the first $9, 350 you make is tax free, so you don’t need to file a return if you made less than this.

Withholding To deduct money from your paycheck.

YOUR PAYCHECK STUB pg. 120

Gross Income Amount you earn BEFORE taxes are taken out.

Net Income Amount you receive AFTER taxes. aka “Take home pay”

Steps To Filing Your Taxes 1) Fill out a W-4 form 2) Receive W-2 from employer in Jan. of the next year 3) Fill out tax returns 4) Pay any taxes you owe by April 15

W-4 Form Required, by law, to fill out. Provides info. to employer that helps them determine how much money to withhold from your paycheck in taxes.

IRS Internal Revenue Service They may fine you if you haven’t paid enough in taxes throughout the year.

Allowances Reduce the amount of money withheld from your pay. Found on W-4 form. 3 allowances

Tax Avoidance It’s legal. Tax payers can avoid paying too much in taxes by taking deductions from their home, student loans, donations to charity and other expenses.

Tax Evasion Not paying your taxes, cheating on your tax return. Illegal! “Only the little people pay taxes. ” Leona Helmsley

The “Queen of Mean” was found guilty on 33 counts of tax evasion, served 18 months in prison. Had to pay $1. 2 M in back taxes. Because of her criminal record, she couldn’t get a liquor license, so she sold her hotel empire.

Read “Global View” pg. 125

From a financial point of view, is it a good idea to have extra money withheld from your pay in order to save money?

Tax Return Forms that taxpayers fill out indicating how much they made, how much they paid in taxes and whether they owe or get a refund.

Who must file? Read page 151. Single and made over $9, 750 Teenagers who made over $5, 950 Married and made over $19, 500

WHEN? File by April 15

What is considered income? 1) Wages 2) Tips 3) Interest earned on savings account 4) Money earned by doing odd jobs 5) Dividends

W-2 Form A form listing your earnings and taxes withheld this past year. Employer must send it to you by Jan. 31.

Form 1099 -INT A statement from your bank showing interest paid to you this past year. The bank sends a copy to the IRS.

1040 EZ The easiest tax form to fill out. Example pg. 156.

Who can use the 1040 EZ? 1) those with no children 2) those under 65 3) earn less than $50, 000 a year 4) earn less than $1500 in interest income

Social Security Number The gov’t. gives you this number as a way to identify you.

Adjusted Gross Income All sources of income added together. (wage, tips, salaries, dividends, interest etc. )

Taxes and Gov’t.

20% of all income in the U. S. goes to the federal gov’t.

Social Security Retirement money ØEmployer & employee pay into this program ØLabeled FICA on pay stub

Medicare Provides health insurance during retirement

Medicare ØEmployer & employee pay into this program ØLabeled FICA on pay stub

? ? Question? ? q. What’s the big deal about social security? q. What’s wrong with Social Security? q. Why do they say I might not have it? q. Do I have to pay for social security even if there is a chance I won’t get to collect it?

Types of Taxes ØIncome tax ØSales tax = taxes added to the price of a good/service at time of purchase. 7. 125%

What is NOT taxable? ØFood ØClothing ØPrescription Drugs

ØProperty taxes = taxes on real estate ØExcise tax = tax collected on the sale of specific goods/services. EX: tobacco, gas, alcohol, firearms

ØEstate tax = tax on property given to you in the event of someone’s death. ØGift tax = tax on gifts worth more than $10, 000. ØSin tax = tax on goods that are harmful to your health. EX: tobacco products

Cigarettes & Taxes As of August 1 st, 2011 • MN sales tax - $. 36 per pack • $. 48 excise tax per pack • $. 75 health impact fee (tax? ? ) $1. 59 in taxes per pack

Taxes & Vikings Stadium • The new stadium will cost $975 million. • $348 million is to be paid by the State of MN through a tobacco tax. • $1. 60 per pack increase • Smoking will NOT be allowed in the new stadium. • Initially the state was going to pay for it by installing these new betting games in bars, but they haven’t been bringing in enough money.

Gov’t. Spending

Tax cuts encourage consumer spending! Why?

Charities The gov’t. allows you to deduct contributions from your taxable income. What is the benefit in that?

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