1. Taxes

2. Taxes and Your Paycheck Payroll taxes Payroll taxes Based on earnings Based on earnings Paid to government by you and employer Paid to government by you and employer Income taxes Income taxes You pay on income you receive You pay on income you receive Varies on financial and family situation Varies on financial and family situation You are responsible for calculating! You are responsible for calculating!

3. Terms IRS IRS Agency that collects income tax Agency that collects income tax W-4 W-4 You are responsible for proper withholdings You are responsible for proper withholdings Allowance Allowance Number that reduces the amount of money withheld from your pay Number that reduces the amount of money withheld from your pay The larger the allowances the less amount withheld The larger the allowances the less amount withheld

4. Documents W-2 W-2 Given to you by your employer by Jan 31. Given to you by your employer by Jan 31. Form 1099-INT Form 1099-INT Interest from the bank. Counts as income Interest from the bank. Counts as income Form 1040 – Used to file taxes if you have many itemized deductions Form 1040 – Used to file taxes if you have many itemized deductions Form 1040-EZ – Used to file taxes if Form 1040-EZ – Used to file taxes if You have no dependents (people you support financially) You have no dependents (people you support financially) You and your spouse are under 65 You and your spouse are under 65 Neither you nor your spouse is blind Neither you nor your spouse is blind Your taxable income is less than $50,000 Your taxable income is less than $50,000 You earned no more than $400 in interest You earned no more than $400 in interest You had no income other than wages, interest, tips, scholarships, or unemployment compensation You had no income other than wages, interest, tips, scholarships, or unemployment compensation

5. 1040EZ Adjusted Gross Income Adjusted Gross Income Deduction Deduction Standard deduction – amount you may subtract from your adjusted gross income Standard deduction – amount you may subtract from your adjusted gross income Taxable Income Taxable Income Federal Income Tax Withheld Federal Income Tax Withheld Earned Income Credit Earned Income Credit

6. Your Paycheck Stub Gross income Gross income Hourly wage * the number of hours you work Hourly wage * the number of hours you work $12 * 10 = $120 $12 * 10 = $120 Withholdings Withholdings Money taken from your Gross Income Money taken from your Gross Income Healthcare Healthcare Union Dues Union Dues Taxes Taxes Net income Net income The actual money you can spend The actual money you can spend Gross income – Withholdings = Net Income Gross income – Withholdings = Net Income What you deposit into the bank What you deposit into the bank

7. Withholding Withholding too much Withholding too much Payroll calculated on ANTICIPATED annual salary Payroll calculated on ANTICIPATED annual salary Results in refund Results in refund Withholding too little Withholding too little Funds due to government when taxes are filed Funds due to government when taxes are filed Payments can be made Payments can be made Reduce allowances Reduce allowances Specify extra $$ withheld on W-4 Specify extra $$ withheld on W-4

8. Taxes and Your Paycheck FICA – Federal Insurance Contributions Act FICA – Federal Insurance Contributions Act Social Security Social Security 6.2% of gross income – max $72K in 1999 6.2% of gross income – max $72K in 1999 Medicare Medicare 1.45% 1.45% Companies match your contribution Companies match your contribution Withholding Withholding Money taken from paycheck and paid Money taken from paycheck and paid Avoids having to pay government all at once Avoids having to pay government all at once

9. Should you take out extra withholdings as a way to save??

10. File a Tax Return Must make a certain amount of money Must make a certain amount of money Tax return – set of forms that taxpayers use to calculate their tax obligation Tax return – set of forms that taxpayers use to calculate their tax obligation If you owe – you pay If you owe – you pay If you overpaid – you receive If you overpaid – you receive By April 15!! By April 15!!

11. 1040EZ Total Payments Total Payments Tax Tax Refund/Owe? Refund/Owe? Electronic funds transfer Electronic funds transfer Sign Sign Check for errors Check for errors

12. Taxes and Government Benefit Principle Benefit Principle Those who use a good or service provided by the government should pay for it. Those who use a good or service provided by the government should pay for it. Example: Toll Roads Example: Toll Roads Ability to Pay Principle Ability to Pay Principle Make more, pay more Make more, pay more Example: Federal Income Taxes Example: Federal Income Taxes Taxes can increase from 15 % to 39.6 % Taxes can increase from 15 % to 39.6 %

13. Taxes and Income Progressive taxes Progressive taxes The more you earn  Higher the tax % The more you earn  Higher the tax % Income Taxes Income Taxes Regressive taxes Regressive taxes The more you earn, less taxes (in %) The more you earn, less taxes (in %) For example  Tax on vehicle, sales tax For example  Tax on vehicle, sales tax Proportional taxes Proportional taxes Same share of all people’s income Same share of all people’s income

14. Collection of Taxes Direct taxes Direct taxes Income taxes Income taxes Property taxes Property taxes You pay You pay Indirect taxes Indirect taxes Someone else pays Someone else pays Businesses – sales taxes Businesses – sales taxes Pay-as-you-earn taxes Pay-as-you-earn taxes

15. Types of Taxes Income taxes Income taxes Progressive Progressive Direct Direct Sales taxes Sales taxes Regressive Regressive Indirect Indirect Property taxes Property taxes Taxes you pay on the real estate you own (and the land it’s on) Taxes you pay on the real estate you own (and the land it’s on) Excise tax Excise tax On sale of specific goods and services -Gas On sale of specific goods and services -Gas Tax is included in the price of the good Tax is included in the price of the good

16. Types of Taxes Estate Taxes Estate Taxes taxes on inheritance taxes on inheritance Gift Taxes Gift Taxes on gifts over $10,000 on gifts over $10,000 Business and license taxes Business and license taxes Required licenses and permits to run certain businesses Required licenses and permits to run certain businesses Doctors office, Liquor License, Beauty Shop Doctors office, Liquor License, Beauty Shop Custom duties and tariffs Custom duties and tariffs Taxes on imported items Taxes on imported items

17. Government Spending The Power to influence The Power to influence “Sin” tax “Sin” tax Tax Cuts Tax Cuts Charities Charities Public goods Public goods Roads, schools, national defense, various regulatory agencies Roads, schools, national defense, various regulatory agencies Social Security and Medicare (37% of spending) Social Security and Medicare (37% of spending)

18. Government Spending National Defense, Veterans, and Foreign Affairs National Defense, Veterans, and Foreign Affairs Social Programs Social Programs Net Interest on the Debt Net Interest on the Debt Physical, Human, and Community Development Physical, Human, and Community Development Law Enforcement and General Government Law Enforcement and General Government