Journal 3/6 Why does the government take out taxes? List 5 things taxes pay for? 1

2 Vocab/Definitions WS

Did You Know Nearly 1/3 all students work 40+ hours per week in summer ¼ work 35+ hours per week during the school year Average teen saves $1000 of summer wages 3

What’s the Problem? Teens don’t understand how TAX applies to them Most forfeit a refund!!! 4 Is this you???

Objectives… Basic Tax Law Exemptions Dependents Withholdings Payroll Taxes Income Deductions When and How to File a Tax Return 5

Who has to pay taxes? Age is not a factor when determining whether or not a person has to pay income tax. If you receive a paycheck from a company, the company will take taxes from your pay. Even though you may not have to file an income tax form, it may benefit you to do so anyway. 6

7 I’ve Got a Job! What’s a W-4?

So What Is A W-4? New employees fill out this form Tells employers how much federal income tax to withhold from paycheck 8

Filling Out the W-4 Correctly If don’t fill out correctly: Owe money when taxes are due April 15 Could be taking out too much tax from paycheck 9

A Few Key Terms You Need To Know WITHHOLDING: Represents money that an employer deducts from paycheck to pay all or part of employee’s taxes However, depending how much you make for the rest of the calendar year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying 10

Are you Exempt? Exempt if: 1. Weren’t required to pay federal income tax last year 2. Don’t expect to this year either (made less than $5800) 3. If under 19 or a full-time student (or until 24 yr/full time) 4. If have to pay, it will depend on if parents CAN claim you as a dependent DEPENDENT: A person who relies on another taxpayer for at least half of his or her support (food, shelter, clothing, education, etc.) If divorced Custodial parent (has child 1 more day than other) One makes more money 11

Examples: If you live with parents and under 19, you can be claimed as a dependent regardless of how much you make. While your parents may not choose to claim you, test is whether they CAN. If they can claim you and you are under 19, and expect to make under $5800 in the calendar year, you will likely NOT have to pay federal income tax. Note: If you are at least 19 but under 24, parents can still claim you as a dependent as long as you are a FULL- TIME Student! 12

I don’t qualify for exempt status – now what? Need to fill out the personal allowances worksheet on the W-4 form! The more exemptions (allowances) you claim, the less tax withheld from paycheck Claim “0” will result in the largest amount of tax to be withheld 13

What if I Make a Mistake? Claim exempt and make more than $5800? More than likely have to owe taxes! If you don’t claim exempt (0 allowances) More than likely break even or receive a refund! 14

Complete a W-4 as if you were applying for a job today 15

Journal 3/10 What taxes are taken out of your paycheck? 16

17 Where’s All The Money I Earned?

Payroll Taxes Collected from employers and employees to provide retirement benefits (social security, Medicare) This amount is paid regardless of income earned Will NOT get back until retirement 18

The Paycheck Stub Miscellaneous Information Gross Income Deductions May get refund on Fed and State No refund on SS or Medicare Net Income 19

Complete “Reading a Pay Stub” handout 21

What’s This, More Forms? W-2s, 1099-INTs and 1099-MISC 22

The W-2 Must receive these by January 31 st from your employer Summarizes How much you made during the year (Earned Income) How much you paid in for taxes Use to help fill out tax return If error, see employer to fix 23

W-2 – will have 3 copies Your records Attach to state tax return Attach to federal tax return 25

What is considered income on your taxes? 26

What is Income? Income: “all income from whatever source derived” Types of Compensations for Services: Fees Commissions Prizes and awards Fringe benefits Tickets, clothing given to you by employer instead of money 27

Other Income 1099-MISC Income derived from business Deductible expenses Must be “ordinary and necessary” Interest and Dividends Earnings/Profits to persons who own stock Considered taxable income Capital Gains and Losses Capital gain: profit from the sale or exchange of investment Short Term Long Term Reported on 1099-DIV Independent Contractors only have to pay taxes if their AGI is more than under $5,450 28

1099-INT Receive this form from your bank Shows interest earned for year Remember: Interest is considered “unearned income” and may have to pay tax on it! 30

Credits A direct reduction of tax owed Credit actually deducted from the amount you owe (dollar for dollar) Credits offered: Encourage certain behavior Assist those in need Provide relief 32

Credit Examples Child Care Expenses Elderly or Disabled Adoption Expenses Buying new electric car Education expenses Form 8863 AGI- Adjusted Gross Income- Your Gross Income minus your credit expenses 33

Am I Required to File a Tax Return (as a dependent)? Due April 15! Required? Depends… *Your income for the year *If parents can claim you, you must file if: 1.Your unearned income was over $950 2.Your earned income was over $5800 Filing Requirement Worksheet for Most Dependents 1. Calculate Gross Income: (earned income + unearned income) 2. Enter dependent's earned income plus $ Minimum amount$ Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income) 5. IS: Gross Income > Adjusted Earned Income? MUST file 6. IS: Gross Income < Adjusted Earned Income? DOES NOT have to file 3.

Am I Required to File a Tax Return? Jill Williams, 18, had two jobs during the past year. She worked as a waitress at La Fogata, where she earned $6800 and as a summer counselor, where she earned $2400. Jill also made $375 in interest. Filing Requirement Worksheet for Most Dependents 1. Calculate Gross Income: (earned income + unearned income) 2. Enter dependent's earned income plus $ Minimum amount$ Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income) 5. IS: Gross Income > Adjusted Earned Income? MUST file 6. IS: Gross Income < Adjusted Earned Income? DOES NOT have to file

Does he/she have to file for taxes? Complete each step of the handout. 36

Take out handout-Does he/she have to file for taxes? Study Guide tomorrow and test on Friday 37

Complete “Reading a Pay Stub” handout 38

Should I File a Tax Return? 39

Should I File a Tax Return? Civic Duty to File Voluntary Compliance Government relies on people to: Report their income Calculate tax liability correctly File on time 40

To Pay or Not to Pay… Why pay? Government uses money to fund services Ex: Schools and Roads Penalty Fine up to $25,000 Imprisonment up to 1 year Or Both! 41

Forms? There are 3 forms you can choose from to file 1040EZ – simplest to file 1040A 1040 – most lengthy to file 42

How Do I File the 1040EZ? **Pass out 1040 EZ 43

How Do I File the 1040EZ? Must meet requirements to use EZ: Single Claim no dependents Taxable income < $100,000 No income other than wages, salaries, and tips (shown on W-2) Up to $1500 taxable interest (shown on 1099INT) 44

Filling out the 1040EZ Terminology: Adjusted Gross Income (AGI) Sum of wages and taxable interest Deduction Amount tax payers may subtract from their AGI before tax is determined (reduction in income) Taxable Income Part of income you must pay taxes on Credit Direct reduction of taxed owed 45

Sending in the Return Photocopy the EZ form for record Mail in W-2 & 1099 INT with return Check if owe payable to “United States Treasury” 46

Don’t Want to Pay? What could you have done differently? If you don’t choose to pay, IRS will add 5% to what you owe for each month you don’t pay! W-2 Claimed “0” rather than exempt so take taxes out Watch out for scam artists! 47

Other Ways for Government to Collect Money Income tax not only source Social Insurance taxes and contributions (retirement and unemployment) Excise tax (tax on gas, cigarettes, and alcohol) Estate and gift tax Customs duties (imports) Other miscellaneous receipts 48

Payment or Refund? Payment: Due April 15 Refund: Check Direct Deposit 49

Where Does Your Money GO? Year 2011 – in billions of dollars % of debt National Defense718 Billion20% Social Security73120% Healthcare (Medicare, Medicade, child health ins program) 76913% Interest on National Debt 2306% Education722% 50

Review of Taxes Study Guide Test next class 51

Test Day Look over your study guide Test will begin at 7:30 Turn in note organizer AND study guide before the test Both are grades!! Make these changes on the test: 8. …withhold more taxes than you think… 10. …will take taxes from …. 17. A. Federal Income Tax 52