MoneyCounts: A Financial Literacy Series Federal Income Tax for U.S. Individuals 11-A Grange Building University Park, PA 16802 financialliteracy.psu.edu finlit@psu.edu 814-863-0214

Description Taxes are something nobody enjoys thinking about, but it’s important that you educate yourself on important issues related to your taxes This will ensure that you fulfill your legal and fiscal obligations and avoid penalties or other problems, and could help you save some money on your tax bill

Learning Outcome Provide an overview of the federal taxing system for U.S. Individuals Describe tax withholding and wage statements process Review relationship between forms W4, W2 for tax purposes Describe the completion of the Form 1040 using key documents.

U.S. Department of Treasury Internal Revenue Service (IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress www.irs.gov

Overview of the tax system Compulsory charges imposed on citizens by local, state, and federal governments Used to provide public goods and services Largest amount of taxes a person pays is on his/her income Pay as you earn or pay as you go Progressive tax system Range is in % (10% -37%) applied incrementally to each additional level of taxable income Overview of the tax system

Terminology Filing Status (single, married, head of household, Widower, etc.,) Gross Income (GI) Adjusted gross income (AGI) Taxable income (TI) Federal tax withheld (FTW) Tax credits (TC) Tax due/tax refund

Married/Joint & Widow(er) Married/Separate Head of Household Tax Reform Individual Tax Rate Schedule Tax Rate Single Married/Joint & Widow(er) Married/Separate Head of Household 10% $1 to $9,525 $1 to $19,050 $1 to $13,600 12% $9,526 to $38,700 $19,051 to $77,400 $13,601 to $51,800 22% $38,701 to $82,500 $77,401 to $165,000 $38,701 to $82,000 $51,801 to $82,500 24% $82,501 to $157,000 $165,001 to $315,000 $82,501 to $157,500 32% $157,001 to $200,000 $315,001 to $400,000 $157,501 to $200,000 35% $200,001 to $500,000 $400,001 to $600,000 $200,001 to $300,000 37% over $500,000 over $600,000 over $300,000

Effective Tax Rate – Single A single person with taxable income of $82,500 $14,089.50 – 17% of taxable income A single person with taxable income of 165,000 $34,489.50 – 21% of taxable income

Effective Tax Rate – Married A married couple filing separately with taxable income of $82,500 each $14,089.50 – 17% of taxable income A married couple filing jointly with taxable income of 165,000 $28,179.00 – 17% of taxable income A married couple filing jointly with taxable income of $82,500 combined $10,029.00 – 12% of taxable income

Tax forms Daunting and complicated to most! Luckily the average American has to deal with a few tax forms 1040EZ (no longer being used in 2018) 1040A (no longer being used in 2018) 1040 (became 1040 simplified form) Schedules (still apply to 2018)

Beginning to End Employee's Withholding Allowance Certificate. Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Form W-4 Withholding Calculator Wage and Tax Statement. Employers must file a Form W-2 for each employee from whom Income, social security, or Medicare tax was withheld. Form W-2

Forms 1099 & 1098 Self-employee & independent contractor Independent – pay own tax liability Receive 1099 Consumers who pay taxes other than federal receive 1098 Interest received 1098-I Mortgage interest

Changes in tax law for 2018 Changes in tax rates (%) NO personal exemption Increase in standard deduction amount Limitation in itemized deductions categories

Statement of income = Form 1099 Form 1099-B Proceeds from Broker and Barter Exchange Transactions Form 1099-C Cancelation of Debt Form 1099-G Unemployment Compensation and All Other Government Grants Form 1099-INT Interest Income for Schedule B Form 1099-MISC Miscellaneous Income Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Statement of payment = Form1098 Mortgage Interest Statement Form 1098-T Tuition and Education Expenses

Form 1040 US Individual Income Tax Return Annual income tax return filed by citizens or residents of the United States. For Tax Year 2018, you will no longer use Form 1040A or Form 1040EZ, but instead will use the redesigned Form 1040. Many people will only need to file Form 1040 and no schedules. Related: Instructions for 1040 Tax Table Schedules for Form 1040 Tax year 2018

Schedules attached to Form 1040 Form 1040 (Schedule A) Proposed Itemized Deductions Form 1040 (Schedule B) Proposed Interest and Ordinary Dividends Form 1040 (Schedule C) Profit or Loss from Business (Sole Proprietorship) Form 1040 (Schedule C-EZ) Proposed Net Profit from Business (Sole Proprietorship) Form 1040 (Schedule D) Proposed Capital Gains and Losses Form 1040 (Schedule E) Supplemental Income and Loss Form 1040 (Schedule EIC) Proposed Earned Income Tax Credit Form 1040 (Schedule F) Proposed Profit or Loss from Farming Form 1040 (Schedule H) Proposed Household Employment Taxes Form 1040 (Schedule J) Income Averaging for Farmers and Fishermen Form 1040 (Schedule R) Credit for the Elderly or the Disabled Form 1040 (Schedule SE) Self-Employment Tax

How to file a tax form? Gross income for Federal Tax +/- adjustment = Adjusted Gross Income -Standard deduction/or itemized deduction = Taxable Income Compare FTW to Tax liability Either a refund or tax due

IRS Assistance Interactive Tax Assistant (ITA) (ITA) is a tool that provides answers to a number of tax law questions It can determine if a type of income is taxable If you're eligible to claim certain credits, and if you can deduct expenses on your tax return It also provides answers for general questions, such as determining your filing status, if you can claim dependents, if you have to file a tax return, etc. Frequently Asked Question Arranged by categories

MoneyCounts: A Financial Literacy Series Comments and questions 11A Grange Building University Park, PA 16802 financialliteracy.psu.edu finlit@psu.edu 814-863-0214