UNIT 8: Paying Your Taxes

8-1 Property Taxes Taxes paid on real estate (houses,etc) collected by local governments Support services including schools, government operations, fire and police, and road maintenance Billed annually or semi-annually (every 6 months)

Assessed Value of Property Amount of property tax is based on assessed value of property Assessed values are usually less than market value Properties in the same community have similar assessed values Tax rate cent = $0.01mill = $0.001 (thousandth of $1) Ex. 62 cents = $ mills = $0.062

Taxes are calculated for each $100 or $1,000 of assessed value: per $100 = ÷100, per $1,000 = ÷1,000 Sometimes the rate is shown as the number of mills or cents for each $1 of assessed value. Ex. Find tax due on a $50,000 house at the rate: $62 per $1,000 ($50,000 ÷1,000) x 62 = $3,100 $6.20 per $100 ($50,000 ÷ 100) x 6.20 = $3,100

6.2 cents per $1 ($50,000 ÷1) x $0.062 = $3,100 Determining tax rates 1.Tax districts determine their expenses for the coming year and prepare a budget 2.Estimate income from other sources 3.Expenses – income from other sources = amount to be raised by property tax Decimal tax rate =Amount to be raised by property tax Total assessed value of a district

ex. Total assessed value = $22,750,000 Total expenses = $382,700 Other income = $63,400 Amount raise by property tax? $382,700 – 63,400 = $314,300 Tax rate? $314,300 ÷$22,750,000 = tax rate *Tax rates are rounded to a minimum of 3 places!

8.2 Sales Tax Sales tax are imposed by local governments Some cities and states do not tax certain items What items are NOT taxed? –Food –Prescription drugs –Services

Ex. Find the tax on a sale of $ at the rate 8.25%. 8.25% = x $ = $ ≈ $8.46 Finding sales tax when some items are not taxable Ex. A mechanic took 4 hours to replace a car’s fan belt and battery. The service charge was $45 an hour. The belt cost $12.98 and the battery, $ The sales tax rate is 7.75%. Find tax on goods, but not on services. 7.75% = ($ ) x = $4.80 TAX

Find total bill. Taxable items$ Tax Nontaxable ($45 x 4) $246.77

8-3 Social Security Taxes and Benefits FICA = Federal Insurance Contributions Act a.k.a. Social Security tax Disability benefits – workers unable to work Medicare – provides hospital insurance for disabled people and people over 65 Retirement benefits Survivors’ benefits – paid to dependents when insured worker dies

Overall tax rate: 7.65% –Social Security = 6.2% Applied to maximum wage of $70,000 –Medicare = 1.45% Applied to ALL wages ex. Income = $82,000 Social Security = $70,000 x = $4,340 Medicare = $82,000 x = $1,189 Total FICA = $ 4, ,189 = $5,529

Retirement Benefits: Amount of monthly benefit depends on: –Age at which you retire –Eligibility –Number of years worked –Amount of last salary earned subject to SS tax Age 65 is considered full retirement age = you get FULL benefits! Earliest age for SS is 62.

Retiring early results in less benefits: –Age 64 receives 93.3%-Age 66 receives 108% –Age 63 receives 86% –Age 62 receives 80% *use table on p.298 Ex. If your average earnings were $55,000 and you retired at 64, you get: From table: $1,166 $1,166 x = $1, If you retire at age 62: $1,166 x 0.8 = $932.80

8.4 Federal Income Tax VOCABULARY: Gross income = total annual income (from salary, wages, tips, and interest earned) Taxable income = income – (adjustments, deductions, and exemptions) Adjustments = ex. Business losses, alimony payments, payments to retirement plans Adjusted gross income = gross income - adjustments to income

Deductions = mortgage interest, property taxes, medical expenses, losses, charity – Standard deduction = fixed deduction *USE $4,000 Exemption = amount of income per person that is free from tax *USE $2,500 per person