U.S. Federal Tax

What is the U.S. tax? Individual income tax Corporate income tax Social insurance taxes Excise taxes Estate and gift taxes Import taxes

When do people pay? Most people normally have deductions made from their paychecks that go towards paying taxes owed. – employers will automatically withhold a portion of a paycheck to pay taxes based on an employee’s W-4 responses At the end of the tax year any additional tax owed or paid is settled (April 15 for individual income tax)

Filing a Tax Return Tax return: a form used to file income taxes with the government. In this you figure out how much of your income is taxable. Taxable income: a person’s gross income minus exemptions and deductions. Gross income: salaries, wages, tips, commissions, interest earned, dividends, capital gains Personal exemptions: set amounts that you subtract from your gross income for yourself, spouse, and dependents. Deductions: a variable amount that you can deduct from your gross income including interest paid on a home mortgage, donations to charity, some medical expenses, and state/local tax payments.

When you get a job, you’ll be asked to fill this out to define how much tax should be withheld

gTaxes/teacher/hows_mod01.jsp

Tax bases and structures Progressive tax: a tax where the percentage of income paid in taxes increases as income increases. – Think income tax Taxable IncomeTax Rate $0 to $9,22510% $9,226 to $37,450 $ plus 15% of the amount over $9,225 $37,451 to $90,750 $5, plus 25% of the amount over $37,450 $90,751 to $189,300 $18, plus 28% of the amount over $90,750 $189,301 to $411,500 $46, plus 33% of the amount over $189,300 $411,501 to $413,200 $119, plus 35% of the amount over $411,500 $413,201 or more $119, plus 39.6% of the amount over $413,200 Federal tax rate

Corporate Income Tax This is a progressive tax This makes up less than 10% of federal revenue typically Corporate taxable income is tough to calculate due to numerous deduction rules.

FICA withholdings Stands for: – Federal Insurance Contributions Act FICA taxes fund Social Security and Medicare Social Security Tax – Provides benefits to retired workers who have paid in (and spouse) and also to people whose disabilities keep them from working. Medicare tax – A national health insurance program that helps pay for health care for people over age 65. Unemployment tax – If workers are laid off from their jobs through no fault of their own they can collect benefits for a time. They must demonstrate that they are looking for employment

Other taxes Excise tax – Targets a specific good (e.g. cigarette tax) – This creates a tax incentive to stop and pursue a different behavior Estate tax – Paid out of a dead person’s estate before the heirs receive anything Gift tax – Only a certain amount of money can be gifted tax free each year. People were avoiding the estate tax by gifting before death…this closed the loophole Import tax – Also called a tariff…this raises the price of foreign goods and keeps the price of American products competitive

TYP 8 Go to t/take-home-pay- calculator.html Calculate your take home pay using your year 10 projected salary You will be presented with the following screen…please include this information in your TYP