Filing Taxes

Lesson Tasks Students will learn general information related to income, deductions, and taxes. Students will complete a practice 1040 Tax Return form Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Learning Outcomes Students will learn about how their income, deductions, and taxes are related as they look to their future career. Students will learn about the different methods of filing taxes and complete an example tax return. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Income & Deductions

Net Income vs. Gross Income Gross income is the total amount a worker is paid before any required or voluntary deductions are made. Net income, also called “take home pay,” is the amount a person receives when he cashes or deposits his check. It is the remaining amount after deductions are made. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

GROSS INCOME - Deductions __________________ NET INCOME Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Required Payroll Deductions By law, employers must pay taxes deducted from employee paychecks. The most common taxes are federal and state, and sometimes cities have their own local taxes. In addition, employees have to pay a Social Security Tax (FICA), and Medicare tax contribution with each paycheck. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Voluntary Payroll Deductions Health Insurance Retirement Savings Union Dues Charitable Contributions Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Taxes

What are taxes? Taxes are required contributions to state revenue, levied by the government on personal income and business profits or added to the cost of some goods, services, and transactions. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Social Security – FEDERAL TAX The Social Security tax is also called the FICA (Federal Insurance Contribution Act) tax. Social Security taxes provide the following benefits for employees and their dependents: • retirement benefits • benefits for the dependents of retired workers • benefits for the disabled and their dependents Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Medicare – FEDERAL TAX The Medicare tax is used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Other Taxes – STATE AND LOCAL Property tax Sales tax Gasoline tax Local/City taxes Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

What is tax money used for? Bridges Road maintenance Research Education Armed services, national defense, veterans, and foreign affairs Retirement income for elderly Social programs Physical, human, and community development Law enforcement Interest on the national debt Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Calculate Sales Tax If a CD costs $15.00 and the tax is 7.5%, what is the final cost? $15.00 * .075 = $1.13 + 15.00 = $16.13 You and your friends receive a lunch bill for $22.50 before tax is included. The tax in your state is 8%. What is the total cost when the tax is included? $22.50 * .08 = $1.80 + 22.50 = $24.30 Which would cost more…a pair of earrings priced at $28.00 with a 7% tax, or a set of posters at $29.00 with a 5.5% tax? $28.00 * .07 = $1.96 + 28.00 = $29.96 $29.00 * .055 = $1.60 + 29.00 = $30.60 The class trip is going to cost each of the fifty students $130.00. If tax is 5%, what is the total cost for the entire class? 50 * $130.00 = $6,500 * .05 = $325.00 + 6,500 = $6,825.00 Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Tax Forms

Federal Tax Form W-4 I-9 W-2 1040 1040EZ Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 You use W-4 Employee's Withholding Allowance Certificate Form to establish your withholding allowances for Federal income taxes. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 Complete the W-4 together Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 Line A: You are a dependent as long as you are living with someone and they provide most of the money for your care . They claim you as a ‘dependent’ Line B: You are single and have only one job or you are married, have only one job, and your spouse does not work or your wages from a second job or your spouse’s wages (or the total of both) are $1,500 or less. Line C: Enter “0” at all times unless you and your spouse do not earn much combined income or your spouse does not earn anything – this makes that person a dependent Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 Line D: Does your salary provide for anyone else living in your household? Line E: See “head of household” conditions Line F: Child care that you are claiming Line G: If you have a low income and have to care for children Line H: Add up your numbers…you want this to be as close to 0 as possible Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 Be sure to completely fill out lower part of the W-4: Print name Social Security Number Full Address Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 Single, Married, Married, but withhold at higher Single rate – you are filing single so you will have more tax taken out of your paycheck Line 5 – total number from above Line 6 – Additional amount you want withheld – to make sure you pay enough Line 7 – Exempt – saying you don’t make enough for the government to withhold any money. DO NOT use this unless you are absolutely sure you qualify Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-4 Line 5 is where you write your withholding allowances. Usually a number between 0 and 7. Less chance of tax return. Greater chance of tax return. Lower # = more $ withheld Higher # = less $ withheld Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

I-9 The purpose of this form is to document that each new employee (both citizen and noncitizen) hired after November 6, 1986,is authorized to work in the United States. PDF of I-9 http://www.uscis.gov/files/form/i-9.pdf Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

I-9 An I-9 Form is the Employment Eligibility Verification Form required by the Immigration and Naturalization Services (INS) to verify your identity and your eligibility to work. All employees must complete this form and provide valid original identifications. You are not eligible for pay until Payroll Services receives a satisfactory I-9. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-2 Form W-2 reflects all taxable wages you received during the calendar year and all taxes withheld from those wages. The form serves as an annual report that enables you to file your personal income tax return with the Internal Revenue Service. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-2 2: Federal Income Tax Withheld: How much federal income tax your employer took out of your paychecks 4: Social Security Tax Withheld: how much social security tax your employer took out of your paychecks 6: Medicare Tax Withheld: how much Medicare tax your employer took out of your paychecks Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-2 Lines 15 – 20: information on state tax and local tax deducted from each paycheck You will need a W-2 from each job that you have held this year, even if you don’t work there anymore! Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

W-2 This is sent to you by your employer – completely filled out! Sent by January 31 Make sure everything is correct and then use it to file your tax information for the IRS! Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

1099-INT Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

1099-INT This is sent to you by your bank or financial institution. It shows how much money you have made on interest on your investments You must pay taxes on your interest! A copy is also sent to the IRS, so they know what the amounts are – you can’t lie! The type of investment you have will determine whether you must pay taxes on the interest or dividends earned Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Filing Your taxes

Filing Your Taxes You must file you taxes by April 15 Penalties for filing late but you can file for time extension, if necessary Ways to file: Hire an Accountant: they do all the work and even send in the forms Inquire about fees charged if accountant files Fill out the forms yourself and send in E-File: electronically file your taxes Save money by filing your taxes yourself! Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Tax Terms Voluntary Compliance: every citizen voluntarily files a tax return by April 15th Tax Evasion: not reporting income or paying your taxes Audit: IRS wants additional data or evidence about your return Correspondence Audit: done by mail Field Audit or Office Audit: meet with IRS agent in person Can give someone else power-of-attorney to take your place Can bring a tax expert for advise and support Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

1040 The IRS Form 1040 is one of the official documents that U.S. taxpayers can use to file their annual income tax return. The form is divided into sections where you can report your income and deductions to determine the amount of tax you owe or the refund you can expect to receive. Depending on the type of income you report, it may be necessary to attach other forms or schedules to it. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

1040 EZ Similar to the 1040 income tax form, 1040EZ is a faster and easier way to file your taxes. This form is only eligible for people with income less than $50,000 and interest income of $400 or less. PDF of 1040 EZ form http://www.irs.gov/pub/irs-pdf/f1040ez.pdf Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/

Complete the lesson

Complete the Lesson… Using the Scenario provided fill out a1040 Tax Return. Financial Literacy Identity Theft www.education.ne.gov http://financeintheclassroom.org/