Managing Taxes

How do you think taxes will affect your lives? Thinking…. What are Taxes? How do you think taxes will affect your lives? How will knowing that a certain portion of their income goes to taxes affect spending, saving and career choices?

Reason for taxes _______________ are payments of money to the government that provide public goods and services for the community. programs, sanitation, law enforcement, and education. Your city, state and country collect taxes to pay for _______________they provide, as well as operating costs. Taxes are payments of money to the government that provide public goods and services for the community. programs, sanitation, law enforcement, and education. Some examples of public goods are national defense, street lights, and roads and highways. Public services include welfare. In some cases, the services may not apply to you, but you are still required to pay for them as being part of the greater community. For example, people that do not have children are still required to pay taxes for teachers and schools. They are really paying to keep their society stable. ___________________- previous years taxes must be filed by this date (can get extension) In the United States, the responsibility for filing a tax return rests with the individual. This defines the concept of _________________________ The IRS has the legal right to audit your tax returns and supporting records for ____________years from the date of filing.

REASON FOR TAXES (CON’T) Local Local taxes pay for fire and police protection, schools, local social programs, parks, water and sewage systems, and other services you receive. State State taxes pay for colleges, prisons, social programs, parks, state police, government officials and workers, and other statewide services and programs. Federal Federal taxes pay for all the major government agencies, including the armed forces. The federal government also collects Social Security/Medicare (FICA), which goes into a fund upon which you can get benefits after you are 65-years old.

The government does not impose taxes on people and businesses because it thinks people have too much money to spend. Taxes are collected to pay for the many goods and services that are provided by the government. Without the government, these goods and services would be unavailable to most people because they could not afford to pay for them by themselves.

The Federal Government Dollar – Where It Goes Net Interest on the Debt 6% Physical, human, and community development 9% National Defense 24% Social Security, Medicare, & Other Retirement 38% Social programs 21% Law Enforcement General Gov’t 2% The Federal Government Dollar- Where It Comes From Personal Income Taxes 32% Social Security, Medicare, &Unemployment and Other Retirement Taxes 24% Borrowing to Cover Deficit 30% Excise, Customs, Estate, Gift, and Miscellaneous Taxes 7% Corporate Income Taxes 7%

Other Types of Taxes Sales taxes In some areas in the United States, there is also a sales tax. You are charged an extra 5% on your purchases. If you buy $500 worth of goods in a month, you have paid an extra $25 in sales tax. School Tax Pays for buses, teachers & all school services Property tax If you own a home, you are required to pay a yearly tax, usually on the assessed value of your house. If you are renting, you are really paying a hidden tax that is part of your rent. If the property tax goes up, the landlord will increase your rent a comparable amount. NOTE: school & property tax are not take out of your paycheck

Taxes on Purchases State and local taxes are added to the purchase price of goods. Excise tax is imposed on specific goods and services Gasoline Cigarettes Alcohol Tires Air travel Telephone service

Flat Tax vs Graduated Tax ________________: Everyone pays the same % rate ________________: the more $$ you make, the higher % you pay in taxes (based on a scale) Which do you like better? WHY?

Tax Bracket for Individuals IRS “Graduated” Tax Bracket for Individuals Tax Bracket Single 10% Bracket $0 – $9,075 15% Bracket $9,076 – $36,900 25% Bracket $36,901 – $89,350 28% Bracket $89,351 – $186,350 33% Bracket $186,2351 – $405,100 35% Bracket $405,101 – $406,750 39.6% Bracket $406,751+ Which do you like better- Graduated or Flat Tax? WHY?

SINGLE TAX EXAMPLE FOR $60,000 SALARY Tax Bracket Single 10% Bracket $0 – $9,075 15% Bracket $9,076 – $36,900 25% Bracket $36,901 – $89,350 28% Bracket $89,351 – $186,350 33% Bracket $186,2351 – $405,100 35% Bracket $405,101 – $406,750 39.6% Bracket $406,751+ First $9,075 of income is taxed at 10% Income between $9,076 & $36,900 of income is taxed at 15% ($36,900-$9,076)*.15 Remaining $23,100 (60,000-36,900) of income is taxed at 25% $907.50 + $4,173.75 + $5,775 Gross Income = $60,000 Taxes = $10,856.25 OVER ALL Tax Rate = 18% (10,856/60,000)

Your turn: calculate the SINGLE TAX owed on $90,000 Tax Bracket Single 10% Bracket $0 – $9,075 15% Bracket $9,076 – $36,900 25% Bracket $36,901 – $89,350 28% Bracket $89,351 – $186,350 33% Bracket $186,2351 – $405,100 35% Bracket $405,101 – $406,750 39.6% Bracket $406,751+

Reviewing Income Tax Tables The income tax that you pay is not a flat tax but a graduated tax based on your income level. Calculate the tax for a SINGLE person who makes $5,500 Calculate the tax for a MARRIED person who makes $148,500 Tax Bracket Single Married Filing Jointly 10% Bracket $0 – $9,075 $0 – $18,150 15% Bracket $9,076 – $36,900 $18,151 – $73,800 25% Bracket $36,901 – $89,350 $73,801 – $148,850 28% Bracket $89,351 – $186,350 $148,851 – $226,850 33% Bracket $186,2351 – $405,100 $226,851 – $405,100 35% Bracket $405,101 – $406,750 $405,101 – $457,600 39.6% Bracket $406,751+ $457,601+

W-4 Tells government how much tax to withhold from your paycheck This form ask for your LINE 5: TOTAL NUMBER OF ALLOWANCES (amount to be withheld for taxes) The lower the number, the higher the amount of taxes withheld. Differs if married or single The more allowances you claim, ______________________ will have withheld from your paycheck.

W-2 Earnings summary for work in the previous year. Usually received by ________________. Needed to file taxes by April 15 (unless filing for extension or the date lands on weekend).

REVIEW What is the difference between a Flat & Progressive Tax? What date are taxes normally due for the previous year? What is a W-4 form? In the United States, the responsibility for filing a tax return rests with the individual. This defines the concept of__________________ The IRS has the legal right to audit your tax returns and supporting records for years from the date of filing. What is a W-2 form? When is it sent out?

What is the Current Minimum Wage in NY?

FICA ______________________Act FICA is a tax used to fund _________________________ Social Security is a federal program that provides benefits for retirees, the disabled and children of deceased workers. Medicare is a federal program that provides hospital insurance benefits. FICA is __________ percent of gross income (_____ percent for Social Security and ______ percent for Medicare) SS is taxed @ 6.2 % of the first $115,500 earned (2014) Medicaid- .9% for over $200k

Reading Your Pay Stub Gross Pay (FORMULA: ___________________________) Total Pay _____________________ deductions Payroll Deductions Amounts taken out of your paycheck OPTIONAL: Retirement, health/vision/dental benefits, FSA, union dues, etc MANDATORY: Taxes Federal Income Tax (varies with income: ranges 0-39%) State Income Tax (varies with income & state: ranges 0 – 8.62%) Social Security Tax (6.2%) Medicare Tax (1.45%) Net Pay Total paycheck after _________________________. FORMULA: Gross Income Payroll Deductions Taxes Federal Income Tax State Income Tax Social Security Tax Medicare Tax Net Income

Tax Freedom Day: How Many Work Days Does It Take To Fully Pay all your federal, state and local taxes?

Take home pay example

State Taxes on Earnings State tax in all but 7 states Alaska Florida Nevada South Dakota Texas Washington Wyoming

DETERMINING THE OVER TIME RATE This OT rate is calculated as 1 ½ or 1.5 times the regular pay/hourly rate over 40 hours IN THIS EXAMPLE: TAKE $12 x 1.5 = $18 FOR OT

CALCULATE OVERTIME RATE: (USE 1.5) $11.50 regular rate= __________ overtime rate $14.50 regular rate= ___________ overtime rate $9.75 regular rate= __________ overtime rate $21.40 regular rate= __________ overtime rate

Pete’s regular hourly wage rate is $15, and he receives a wage of 1 Pete’s regular hourly wage rate is $15, and he receives a wage of 1.5 times the regular hourly rate for work in excess of 40 hours. During a March weekly pay period, Pete worked 42 hours. Compute the following amounts for Pete’s wages for the current week. 1. Gross earnings. 2. FICA taxes. (Assume an 8% rate) 3. State income taxes withheld. (Assume a 2.0% rate.) 4. His only voluntary deduction is for group hospitalization insurance at $25 per week. 5. Net pay.

Sue Stein's regular rate of $15 per hour. Her overtime rate is one and one-half times her regular rate for any hours which exceed 40 hours per week. She worked 48 hours last week.Therefore, her gross wages were: a. $720. b. $600. c. $780. d. $1,080.

Match the correct letter to the correct number. ____1. Gross Pay A. money taken out for taxes and insurance ____2. Deductions B. the name of the person working ____3. Net Pay C. 100% of money earned ____4. Pay rate D. gross pay - deductions = take home pay ____5. Employee E. the amount earned each hour

Regular Hourly rate & you worked 40 Hours USE THIS # TO CALCULATE THE OVERTIME HOURLY PAY RATE Regular Hourly rate & you worked 40 Hours $7.25 12 $9.80 8 $12.46 5.5

Pay periods MONTHLY = BI-MONTHLY = WEEKLY= BI-WEEKLY = ANNUALLY =

PRACTICE

Let’s say you are single and work as a graphic artist in NY earning $30,000 a year. You are paid every bi-weekly. What is the gross amount that you earn each paycheck? _________ Now, we are going to look at some of the deductions that will be coming out of your paycheck. First, calculate your payroll (FICA) taxes per paycheck: Multiply your gross earnings by 6.2%. This amount will go toward Social Security. ____________ Multiply your gross earnings by 1.45%. This amount will go toward Medicare. ________ Subtract lines SS & MEDICARE ANSWERS FROM THE BI-WEEKLY PAYCHECK. ________________

REVIEW What percentage is FICA? What are taxes? What is gross pay? What is the gross pay formula? What is the formula to find the overtime rate? What is net pay? What is then NET PAY Formula: What is FICA? What percentage is FICA?

Reviewing Income Tax Tables The income tax that you pay is not a flat tax but a graduated tax based on your income level. Calculate the tax & Net Pay for a SINGLE person who makes $3,500 Calculate the tax & Net Pay for a MARRIED person who makes $145,500 Tax Bracket Single Married Filing Jointly 10% Bracket $0 – $9,075 $0 – $18,150 15% Bracket $9,076 – $36,900 $18,151 – $73,800 25% Bracket $36,901 – $89,350 $73,801 – $148,850 28% Bracket $89,351 – $186,350 $148,851 – $226,850 33% Bracket $186,2351 – $405,100 $226,851 – $405,100 35% Bracket $405,101 – $406,750 $405,101 – $457,600 39.6% Bracket $406,751+ $457,601+