Tax for Teens 1 Vocab/Definitions WS

Did You Know?  Average annual income for teens: $3,  40% of teens currently save regularly  Nearly 1/3 all students work 40+ hours per week in summer  ¼ work 35+ hours per week during the school year  Average teen saves $1000 of summer wages 2 FYI: Amish pay tax on real estate and personal property and income tax on any earnings. They do not pay school tax, social security or Medicare tax.

What’s the Problem?  Teens don’t understand how TAX applies to them  Most forfeit a refund!!! 3 Is this you???

4 I’ve Got A Job! What’s an I-9 and a W-4?

Form I-9 – Employment Eligibility Verification  Proves you aren’t an illegal alien  Penalty if not one on file for each employee  Keep 3 years after employee is gone  Acceptable documents used to prove citizenship:  Passport  Voter’s registration  School or military ID  Driver’s license  Social security card 5

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So What Is A W-4?  New employees fill out this form  Tells employers how much federal income tax to withhold from paycheck 7

Filling Out the W-4 Correctly  If don’t fill out correctly:  Owe money when taxes are due April 15  Could be taking out too much tax from paycheck  Lose potential interest 8

A Few Key Terms You Need To Know  WITHHOLDING :  Represents money that an employer deducts from paycheck to pay all or part of employee’s taxes  However, depending how much make for the year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying 9

Can you put Exempt on your W4?  You can put “Exempt” if: 1. Weren’t required to pay federal income tax last year 2. Don’t expect to this year either (made less than $6100 { std deduction - base amount of income that is not taxed }) 3. If under 19 or a full-time student (or until 24 yr/full time) 4. CAN parent(s) claim you as a dependent?  DEPENDENT : A person who relies on another taxpayer for at least half of his or her support (food, shelter, clothing, education, etc.)  If divorced  Custodial parent (has child 1 more day than other)  One makes more money 10 Mind map

Examples:  If you live with parents and under 19, you can be claimed as a dependent regardless of how much you make.  While your parents may not choose to claim you, test is whether they CAN.  If they can claim you and you are under 19, and expect to make under $6100 in the calendar year, you will likely NOT have to pay federal income tax.  Note: If you are at least 19 but under 24, parents can still claim you as a dependent as long as you are a FULL-TIME Student! 11 In-Class Am I Exempt WS Am I Exempt WS

I don’t qualify for Exempt status – now what?  Need to fill out the personal allowances worksheet on the W-4 form!  The more exemptions (allowances) you claim, the _____ tax withheld from paycheck  Claim “____” will result in the largest amount of tax to be withheld 12 TAX TABLE See pg acct text Fill out W4 with workbook

What if I Make a Mistake? CClaim exempt and make more than $6100? MMore than likely have to owe taxes! IIf you don’t claim exempt (0 allowances) MMore than likely break even or receive a refund! 13 W4 ws

14 Where’s All The Money I Earned?

 Payroll Taxes  Federal and State  Collected from employers and employees to provide retirement benefits ( social security, Medicare )  This amount is paid regardless of income earned  Will NOT get back until retirement 15

The Paycheck Stub MMiscellaneous Information GGross Income DDeductions MMay get refund on Fed and State NNo refund on SS or Medicare NNet Income 16

W4 qz/Am I Exempt QZ

What’s This, More Forms? W-2s and 1099-INTs 18

The W-2  Must receive these by January 31 st from your employer  Summarizes  How much you made during the year ( Earned Income )  How much you paid in for taxes  Use to help fill out tax return  If error, see employer to fix 19

W-2 continued  W-2 – will have 3 copies  Your records  Attach to state tax return  Attach to federal tax return 20

Fill out w wb

1099-INT  Receive this form from your bank  Shows interest earned for year  Remember: Interest is considered “ unearned income ” and may have to pay tax on it! 22

Fill out w wb

24 Am I Required to File a Tax Return?

Am I Required to File a Tax Return (as a dependent)?  Due April 15!  Required? Depends… *Your income for the year *If parents can claim you, you must file if : 1.Your unearned income was over $ Your earned income was over $6100 Filing Requirement Worksheet for Most Dependents 1. Enter dependent's earned income plus $ Minimum amount$ Compare lines 1 and 2. Enter larger amt (Adjusted Earned Income) 4. Maximum Amount$ Compare lines 3 and 4. Enter the smaller amount 6. Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return. 3. OR if… 25

Am I Required to File a Tax Return?  John Garcia, 18, earned $4200 working at the local library and was paid $210 in interest from his bank savings account. 26 Filing Requirement Worksheet for Most Dependents 1. Enter dependent's earned income plus $ Minimum amount$ Compare lines 1 and 2. Enter larger amt (Adjusted Earned Income) 4. Maximum Amount$ Compare lines 3 and 4. Enter the smaller amount 6. Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return.

Am I Required to File a Tax Return?  Jill Williams, 18, had two jobs during the past year. She worked as a waitress at La Fogata, where she earned $6800 and as a summer counselor, where she earned $2400. Jill also made $375 in interest. Do I have to file return WS 27 Filing Requirement Worksheet for Most Dependents 1. Enter dependent's earned income plus $ Minimum amount$ Compare lines 1 and 2. Enter larger amt (Adjusted Earned Income) 4. Maximum Amount$ Compare lines 3 and 4. Enter the smaller amount 6. Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return.

Should I File a Tax Return? 28

Humm, should I file?  Civic Duty to File  Voluntary Compliance  Government relies on people to:  Report their income  Calculate tax liability correctly  File on time 29

To Pay or Not to Pay…  Why pay?  Government uses money to fund services  Ex: School  Penalty  Fine up to $25,000  Imprisonment up to 1 year  Or Both! ReviewDo I have to file return QUIZ

Forms?  1040EZ – simplest to file  1040 – most lengthy to file 31

How Do I File the 1040EZ? 32

How Do I File the 1040EZ?  Must meet requirements to use EZ:  Single  Claim no dependents  Taxable income < $100,000  No income other than wages, salaries, and tips (shown on W-2)  Up to $1500 taxable interest (shown on 1099INT) 33

Filling out the 1040EZ  Terminology:  Adjusted Gross Income (AGI)  Sum of wages and taxable interest  Deduction  Amount tax payers may subtract from their AGI before tax is determined (reduction in income)  Taxable Income  Part of income you must pay taxes on  Credit  Direct reduction of taxed owed 34 Fill out 1040EZ wb

Sending in the Return  Photocopy the EZ form for record  Mail in W-2 & 1099 INT with return  If owe  payable to “United States Treasury” 35

Don’t Want to Pay? What could you have done differently?  If you don’t choose to pay, IRS will add 5% to what you owe for each month you don’t pay!  W-2  Claimed “0” rather than exempt so take taxes out  Watch out for scam artists! EZ Prob WS

Other Ways for Government to Collect Money  Income tax not only source  Social Insurance taxes and contributions (retirement and unemployment)  Excise tax (tax on gas, cigarettes, and alcohol)  Estate and gift tax  Customs duties (imports)  Other miscellaneous receipts 37

Where Does Your Money GO? Year 2012 – in billions of dollars % of debt National Defense689 Billion19% Social Security77322% Healthcare (Medicare, Medicaid, child health ins program) 73221% Interest on National Debt 2206% Education67,249 million2% 38 Chap 7 review 1040 EZ quiz

What is the 1040 Form?1040 Form 39

File 1040 Form?  File this form if:  Received dividends or capital gains from an investment (1099 DIV)  Received tips of $20 or more in any month that you didn’t report  Box 8 of W-2 shows tips allocated  Earned income from your own business  Won money in lottery or raffle  Received non-employee compensation  Social Security pension  Farm 40

Filing Status and Exemptions  Filing status affects amount tax paid  Exemptions  $ each exemption may be subtracted from adjusted gross income  Exemptions help to reduce taxable income  But you won’t qualify bc parents can claim you 42

What is Income?  Income : “all income from whatever source derived”  Earned Income  Unearned Income  Miscellaneous Income 43

Use to report “other income” Ex: Commissions Fringe Benefits Laker tickets Clothing Income from outside business Web page Cash prizes won Raffle Lottery Capital Gains Interest/Dividends

Exclusions From Income CCertain economic benefits don’t have to count as income = exclusions f rom income GGifts MMust see Dominant Reason was out of affection, respect, admiration, charity EEx: transfer of property IInheritances SScholarships MMay be excluded from income if used to pay tuition/course related fees DDe Minimis Fringe Benefits EEx: Store’s photocopier, company coffee, telephone EEbay winnings (pg 41) 45 Do pg 42 WB

Standard & Itemized Deductions (both help to reduce taxable income) YOU DECIDE 1. Standard Deduction: Base amount of income that is not taxed Income: $6100 (sgl indiv person) a. Allowed to deduct this amt from your income before taxes 2. Itemized Deduction : a. State and Local Taxes b. Gifts to Charity c. Job Expenses – mileage? d. Travel e. Uniforms f. Education – if maintain or improve skills and/or meet requirements of employer g. Other: tools, supplies for job, professional journals, protective clothing 46 You will take the larger amount of the two!

Credit  A direct reduction of tax owed  Credit actually deducted from the amount of tax you owe (dollar for dollar)  Child Care Expenses  Elderly or Disabled  Adoption Expenses  Buying new electric car  Education expenses 47

Payment or Refund?  Payment:  Due April 15  Refund:  Check  Direct Deposit 48 Chap 8 Review