Taxes and Social Security Chapter 23 9/21/2018

Objectives Describe the tax system and the services its finances Complete a federal tax return Describe how the Social Security system works Identify Social Security benefits and state social insurance benefits Describe the challenges facing the Social Security system today 9/21/2018

Understanding Taxes Payments that you make to support the government and to pay for government services Three levels of government: federal, state, and local Internal Revenue Service (IRS)- government agency that collects federal taxes and oversees federal tax system First…you may think the whole topic of taxes is confusing. The general structure and working of our tax system is easy to understand though. 9/21/2018

Types of taxes Income taxes – percentage of taxable income you earn (ranges from 10-35%) The more you make the more you pay! Withheld from your paycheck Social security taxes – you pay this so you’ll receive these benefits when you retire. Called (FICA Tax) Sales taxes – added to price of something you purchase (Michigan = 6%) Property taxes – main source of money for local governments. Based on value of your property (generally land and buildings) 9/21/2018

Where do tax dollars go? Education Transportation Safety Health Military services Postal services Public schools and libraries Ranging from roadways and mass transit to dams and airports Including law enforcement and fire protection Hospitals and medical research studies 9/21/2018

A good tax system… Fair Clear and simple Collected at a convenient time Stable Flexible Everyone who is able to pay should pay his or her fair share 4. Taxpayers should know in advance how much they’ll owe. If tax laws are always changing, people can’t predict how much money to budget for taxes. 5. When necessary, the government should be able to adjust the tax system to bring in more or less income. There are times when the government may need to raise more money. 9/21/2018

Understanding income tax returns A form that shows how much income you received and how much tax you owe. If your employer withheld more money from your paycheck that you owe, you will receive a tax refund. Information you provide on W-4 form tells employer how much to withhold. Name, address, SSN, marital status, # of allowances (deductions) you are claiming…the higher the number, less tax is withheld. 9/21/2018

Social Security Program that provides benefits for people of all ages. Most of money that pays for Social Security comes from Social Security taxes. Both workers and employers pay these taxes. SSN is a permanent identification number. Government uses it to keep track of your contributions and work history. Work credits – measurements of how long you’ve worked. 9/21/2018

Types of benefits Disability Person who cannot work because of a physical or mental condition. Amount of benefit is based on worker’s average earnings Survivors’ benefits – paid to family of a worker who dies Retirement benefits – paid to workers who retire. Health insurance benefits (Medicare) – paid to people who need hospitalization or other medical care. Cover nearly everyone who is 65 or older 3. Retirement age for reduced benefits is 62. full benefits is age 65. that age will gradually rise to 67 by 2027. 9/21/2018

State-run social insurance programs Unemployment insurance Provides temporary income to workers who have lost their jobs. Lost your job through no fault of your own Funded by taxes both employer and employee pay Workers’ compensation benefits Paid to workers injured on the job (through no fault of their own) and to dependents of workers killed on the job Benefits may include medical care, disability income, and other benefits Funded by taxes paid by the employer 9/21/2018

Future of Social Security System is going broke! The taxes we pay provide benefits for workers who have already retired When it’s your turn to retire, younger workers will pay the taxes to fund your retirement Problems: people live longer so receive benefits longer, earlier retirements so paying less into system, U.S. birthrate is declining…fewer young workers paying FICA tax to support retired people in future 9/21/2018