Payroll Taxes & W-4s

Why do we pay taxes? Why do we pay taxes? Roads, Operation of Government, Schools, Welfare, Police, etc… Roads, Operation of Government, Schools, Welfare, Police, etc… The money for these has to come from somewhere!!! The money for these has to come from somewhere!!!

Federal Taxes Federal Taxes  These go to the U.S. Government State and Local Taxes State and Local Taxes  These go to the state, city, and ward in which you live.

All of the money you make is taxed. All of the money you make is taxed. Employers don’t give you all of your money. Employers don’t give you all of your money. They hold some for the following: They hold some for the following: –Payroll Taxes. –Federal Income Taxes

Payroll Taxes Payroll Taxes: Payroll Taxes: –Social Security Tax  S.S. gives people over 65 retirement money.  S.S. helps disabled people who can’t work. –Medicare Tax  Medicare helps people 65 and older with medical problems.

2006 Payroll Tax Rates: 2006 Payroll Tax Rates: –Social Security: 6.20% –Medicare: 1.45% If you make $10,000: If you make $10,000: –SS: $10,000 * 6.20 % = $620 –Medicare: $10,000 * 1.45% = $145 Payroll Taxes

Income Taxes Federal Income Taxes: Federal Income Taxes: –Pays for National Defense –Pays for Law Enforcement –Helps pay off the National Debt –Pays for National Parks –Helps Veterans –And much more!

Income Taxes Income Taxes are based on information you put on a W4 form. Income Taxes are based on information you put on a W4 form. What is a W4 form? What is a W4 form? –Whenever someone hires you, they will give you a W- 4 to fill out. –Employers use the information on that form to figure our how much money to withhold for income tax. –The W4 form will ask how many allowances you have.

Here is Mister Crow’s W-4 Form: Here is Mister Crow’s W-4 Form:

Income Taxes What is an allowance? What is an allowance? –You do not have to pay all of your income taxes right away. –You can pay all your taxes in April if you want. –An allowance “allows” you a break on your taxes or the chance to pay your tax at a later date. This way, you don’t have as much tax taken out of your weekly paycheck.

Income Taxes But be careful!!! You will still have to pay those taxes at a later date! But be careful!!! You will still have to pay those taxes at a later date! –0 Allowances  The government holds as much as it can. You will probably be given a refund at the end of the year. –1 Allowance  Most people choose 1 allowance. They will normally not owe any tax at the end of the year. –Taxes change each year, and sometimes the government will withhold too much. In this case you get a refund!

Gross Pay – What you earn. Gross Pay – What you earn. Net Pay – What you take home after your taxes are taken out. Net Pay – What you take home after your taxes are taken out. Gross Pay – (Payroll Tax + Income Tax) = Net Pay Gross Pay – (Payroll Tax + Income Tax) = Net Pay $ 10,000 - ( ( ) ) = $7030 $ 10,000 - ( ( ) ) = $7030

Rule of Thumb: Rule of Thumb: Plan on taking home less than ¾ of your salary! Plan on taking home less than ¾ of your salary!