Taxes and Income

Employer’s and Income Taxes If you file exempt on you W-4If you file exempt on you W-4 –Social Security and Medicare –No Federal or State Employer Pays Equal Share of Employee’s FICAEmployer Pays Equal Share of Employee’s FICA

Sources of Federal Government Income

Classifying Taxes Principles of TaxationPrinciples of Taxation –Benefit Principle ex: Toll Roadsex: Toll Roads –Ability-to-pay Principle Federal Income TaxesFederal Income Taxes What occurs is happening on the tax table?What occurs is happening on the tax table? Which principle do you believe in?

Progressive vs. Regressive What does Progressive mean? The more you make, the more you payThe more you make, the more you pay Situation: Sue makes $50,000 a year andSituation: Sue makes $50,000 a year and she pays a 15% income tax rate. Joe makes $20,000 and pays a 12% income tax rate. Remember: Income taxes are Progressive

Progressive vs. Regressive What does regressive mean? Less taxes (in%) the more you can earnLess taxes (in%) the more you can earn Situation: Joe and Sue are in the market for a new car. They both find a used car that cost $10,000 and pays a 6% tax ($600). This $600 dollar tax is 1.2% of Sues income and 3% of Joe’s income.Situation: Joe and Sue are in the market for a new car. They both find a used car that cost $10,000 and pays a 6% tax ($600). This $600 dollar tax is 1.2% of Sues income and 3% of Joe’s income. Remember: State and Local Taxes are regressive. This tax falls heavier on people with lower income.

Progressive vs. Regressive vs. Proportional Last but not least? What are proportional taxes? These taxes take the same share of all people’s income. There are no perfect examples of proportional tax.

How Taxes are Collected DirectDirect –Paid DIRECTLY to the Government Income and Property TaxesIncome and Property Taxes IndirectIndirect –Taxes that are included in the cost of a good or service. Sales TaxSales Tax LandlordsLandlords

Types of Taxes State whether you agree or disagree with the following statements:State whether you agree or disagree with the following statements: –Most of the money collected from property tax goes to school districts. –Excise taxes are included in the price of the item unlike sales taxes. –Gifts that are worth $10,000 or LESS are not taxed by the government.

Types of Taxes Income TaxesIncome Taxes –Federal, State, and local Sales TaxesSales Taxes Property TaxesProperty Taxes Excise TaxExcise Tax –On sale of specific goods and services – tobacco, gas, alcohol State & Local GovernmentsState & Local Governments –Driver’s Licenses –Building Permits Business LicensesBusiness Licenses Estate (death) and gift taxes ($10,000)Estate (death) and gift taxes ($10,000) Business and license taxesBusiness and license taxes Custom duties and tariffsCustom duties and tariffs

Mystery: Who THE CASE A person tries for years to get the financial backing needed for a commercial venture. After finally finding a backer, the person buys materials, hires employees, and begins work. The venture doesn’t meet its objective, but the person’s efforts change the world and the backers are elated by the results.A person tries for years to get the financial backing needed for a commercial venture. After finally finding a backer, the person buys materials, hires employees, and begins work. The venture doesn’t meet its objective, but the person’s efforts change the world and the backers are elated by the results. THE MYSTERY Who is the person and what year was the venture launched?Who is the person and what year was the venture launched?CLUES The person is an Italian male.The person is an Italian male. The venture used existing technology in a new way.The venture used existing technology in a new way. The venture made future ventures possible.The venture made future ventures possible. The man’s financial backers are Spanish.The man’s financial backers are Spanish. The objective of the venture was to explore new territory.The objective of the venture was to explore new territory. The venture began near the end of the 15th century.The venture began near the end of the 15th century.

Answer: Christopher Columbus set sail in 1492, hoping to discover a new route to India.

What you need to know W-4W-4 Exemption from WithholdingExemption from Withholding W-2W-2 Property TaxProperty Tax 1040EZ1040EZ FICAFICA IRSIRS DependentsDependents April 15April 15 January 31January 31 Regressive Tax Exemptions/Deductions Indirect Tax Gross Income Net Income Allowances & how they work Excise Tax Tariffs Public Goods Tax Return