Paying Taxes

Amendment XVI – US Constitution The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Paying Taxes “In this world nothing is certain but death and taxes.” - Benjamin Franklin

4 Reasons for Taxes Funding of public goods & services Influence behavior Stabilize the economy Redistribute income

Paying Taxes IRS = Internal Revenue Service Income Tax Return = form which all employees send to the IRS each year to file an income tax return = to send it to the IRS Income: money earned from a job, bank interest or investments Wages or compensation: money earned only from a job

Taxes People Pay Income Tax – tax on your income Social Security Tax – taxes to pay for the social security program Sales Tax – tax paid on the purchase price Excise Tax – tax paid on the manufacture of goods/services (gasoline, air transportation) Property Tax – tax paid based on the value of land & buildings Estate & Gift Tax – tax paid on the value of property after a person’s death Business or License Tax Customs & Tariffs

Income Taxes Federal income tax is called a progressive tax Progressive taxes take a larger percentage of the income of high-income earners

US Income Tax Brackets Taxable Income BetweenTax Rate $0 – $7,825 10% $7,825 - $31,850 15% $31,850 - $77,100 25% $31,850 - $77,100 25% $77,100 - $160,850 28% $77,100 - $160,850 28% $160,850 - $349,700 33% $349,700 and above 35% ≈ 50% of US ≈ 2% of US

Tax Fact If you separated the US into half based on earnings, the top half of earners earn 87% of the money and pay 97% of the income tax received by the government while the bottom half earn 13% of the money and pay only 3% of the income tax received

Paying Taxes There are two types of income tax that employees in the U.S. pay: Federal (U.S.) tax State (Colorado) tax

Paying Taxes To withhold income taxes (tax withholding) to subtract income taxes directly from the employee’s paycheck Exempt from paying income tax (tax exemption) excused from paying income tax because of one of a potential variety of reasons

Income Tax Responsibilities Complete a W-4 form that allows your employer to withhold income taxes from your pay File a tax return at least once per year (you will have to pay a “penalty” if you file more than one tax return during a calendar year)

Do I have to file a Tax Return? If your parents claim you as a dependent, you need to file a return if: You earned more than $5,800You earned more than $5,800 Your unearned income > $950Your unearned income > $950 Your gross income was more than the larger of:Your gross income was more than the larger of: $950$950 Earned Income (up to $5500) plus $300Earned Income (up to $5500) plus $300

What U Need 2 File W-2 Form – received from employer showing total earnings and taxes withheld

Your W-2 Form

What U Need 2 File Form 1099 – received from banks and other companies showing income received from interest or dividends

1099 Form

What U Need 2 File IRS instruction booklets & forms – depending on your deductions & level of income, you will use either the 1040EZ, 1040 or 1040A

US 1040

What U Need 2 File Personal records – financial records, receipts, etc. as needed for filling out forms

Completing Your Return Filing Status – single, married, head of household Exemptions – tax laws allow some income to be exempt based on the number of people in each household – qualified “exemptions” generally include the taxpayer, a spouse and any dependents (someone supported by the taxpayer’s income) Income – you must list your income from ALL sources

Notable Tax Evaders Sunny Garcia (surfer – did not pay taxes on over $1 million in winnings) Richard Hatch (first winner of Survivor – did not pay taxes on $1 million prize or $350k in appearance fees) Tom Coughlin (vice-chairman of Wal-Mart – did not pay taxes on embezzled money) Wesley Snipes (actor – reported $0 income in 1997, actually earned $7 million) Pete Rose (baseball’s all-time hits leader – did not pay taxes on gambling winnings or autographs) Al Capone (Chicago Mob Boss – did not report income from “business ventures”)

Completing Your Return Deductions – reduce the amount of income that is taxed; may be itemized deductions or taken as a standard deduction Taxable Income – the amount that remains after deductions and exemptions are removed Tax Owed – tax tables are provided with your instruction booklet that will tell you how much income tax you are required to pay Tax Credits – subtracted directly from the amount of tax owed (college tuition, child care expenses, etc.)

Tax Return Assignment Complete a EZ Tax Return You’re single and no one claims you as a dependentYou’re single and no one claims you as a dependent Wages, Salaries, Tips = $22,134.56Wages, Salaries, Tips = $22, Taxable Interest = $134.00Taxable Interest = $ Federal Withholding = $1,726.50Federal Withholding = $1, State Withholding = $ State Withholding = $