2. Unit 3: Taxes Consumer Education Chapter 5 & Section 16.3

3. Types of Pay Salary – Set amount of money earned by an employee per year or other fixed length of time Wages – Employee earnings that are paid by the hour, day, or item – Piecework – work for which wages are based on the number of items or pieces produced

4. Types of Pay (Continued) Commission – A fixed % or amount of profit given to an employee in exchange for making a sale Tips – Money given to an employee by customers in exchange for a service

5. How Employees Are Paid Time – Weekly (52 paychecks per year) – Bi-weekly (26 paychecks per year) – Semi-monthly (24 paychecks per year) – Monthly (12 paychecks per year) Direct Deposit Paycheck

6. Regulations Affecting Pay Equal Pay Minimum Wage Overtime

7. Types of Benefits Insurance benefits Savings and retirement benefits – Vested – entitled to some or all of his or her money in the retirement plan when leaving the company Other Benefits – Paid holidays – Sick leave – Vacation – Child Care – Education

8. Employment Classifications Full-time Part-time Seasonal Temporary Contract

9. Payroll Taxes Tax – required payment to a local, state, or national government Placed on income earned by individuals Assessed based on the individual’s total earnings and the tax laws that apply to that type of income Paid to the government by individual employees and their employers

10. Income Taxes Taxes you pay on most types of income you receive Federal Income Tax & State Income Tax State – tax structures vary Federal - Not a fixed percentage of income Dependent upon the taxpayer’s financial and family situation Range from 10 to 35 percent of Taxable Income

11. Income Tax (continued) Federal Insurance Contributions Act (FICA) – Taxes more commonly known as Social Security and Medicare – These tax amounts are matched by employers (IRS receives double) Social Security Tax – 6.2% Medicare Tax – 1.45% These programs will be discussed in greater detail at the end of the Tax Unit

12. Income Tax Withholding Withholding – your employer collects payroll taxes by deducting money from your wages Internal Revenue Service (IRS) – the federal agency that collects and regulates taxes Withholding allows the government to collect taxes at a steady rate and spreads out taxpayer payments over time

13. Info on a Pay Stub Identification Earnings – Gross Income Deductions – Tax withholding – Other deductions Totals and Net Income

14. Income Tax Withholding Form W-4 – Employee’s Withholding Allowance Certificate 1. Your Personal Information – Name, Birthdate, Address, Social Security Number 2. Exempt Status – You may be excused from paying taxes – this is rare 3. Number of Allowances you are claiming – These reduce the amount of tax withheld from your paychecks – You may claim 1 allowance for yourself and 1 for each person dependent on your income from this job

15. W-4 FORM

16. Do you claim 0 or do you claim 1? PAYCHECKSREFUND 0↓ ↑ 1 ↑↓

17. Income Tax Returns A set of forms that taxpayers use to calculate their tax obligation Getting Ready to File a Tax Return – Do I need to file? – What materials do I need? – Which form do I use? – When do I file? – How do I file?

18. Getting Ready for Tax Time Do you need to file? – Most workers are required to file a tax return, but there are exceptions – If you have income above a minimum amount set each year by the IRS, you must file a return – For tax purposes, income is more than just your wages What materials do you need?

19. Getting Ready for Tax Time Form W-2 – Wage and Tax Statement Your employer totals up all of your gross wages and all amounts of taxes withheld from your paychecks for the calendar year You must receive a W-2 for each job that you held during the calendar year You must receive all W-2’s by January 31st

20. W-2 FORM

21. Getting Ready for Tax Time Form 1099-INT –I–Interest Income Your bank or investment company totals up all of your interest earned from your investment accounts for the calendar year –S–Savings, Stocks, Bonds, Mutual Funds, etc. All interest income is taxable You must receive a 1099 for each investment that you held during the calendar year You must receive all 1099 forms by January 31st

22. 1099 FORM

23. Income Tax Forms (Returns) There are three versions of the IRS Income Tax Return 1040EZ 1040A 1040 (the Long Form) – When do I file? By April 15 th most years “Tax Day”

24. Completing Your Tax Return Filing Status – Single or Married Exemptions – Exempt – excused from tax, based on the number of people/dependents in the household – Dependent – someone who is supported by a taxpayer’s income (claimed on W-4: Withholding Allowances) Income – You must list your income from ALL sources W-2’s, 1099’s, etc. – Adjustments – all income added together, however you may get to subtract certain items as well

25. Completing Your Tax Return Deductions – Expenses you can legally subtract from your income before calculating your tax amount – Standard Deduction A set amount that the IRS allows all taxpayers to deduct without listing any actual expenses – Itemized Deductions Must use the 1040 Long Form & complete Schedule A The amounts actually spent by a taxpayer on tax-deductible expenses during the year (would be greater than the allowed standard deduction amount)

26. Completing Your Tax Return Exemptions – subtract them now (1040A & 1040) Taxable Income – The portion of your income that is actually subject to income tax Tax owed – from Tax Tables Tax Credits – Subtracted directly from the amount of tax owed – Ex. Education costs, Child Care costs, Other taxes paid Final Calculations

27. Electronic Filing Rather than mailing your income tax return, you can send it electronically through a bank, IRS web site, or a company whose tax preparation software you’re using

28. Rationale for Taxation Purposes of Taxation – Government revenue - to finance the government’s roles in our economy Also to influence behavior – Fund public goods and services Roads Schools National Defense Regulatory Agencies

29. Sources of Government Revenue

30. 2 Tax Principles Benefit principle – Those who use (or benefit from) a public good or service should pay for it Ability-to-pay principle – Those who have larger incomes should pay a larger share of what they receive

31. Relationship of taxes to INCOME Progressive tax (Graduated Tax) – Takes a larger % of the income of high-income people than of low-income people Ex. Federal income tax Regressive tax – Takes a larger % of the income of low-income people than of high-income people Proportional tax (Flat Tax) – Taking the same % out of everyone’s income Ex. State income tax

32. The Taxes People Pay Income Taxes – Federal and State Social Security Taxes (FICA) Sales Tax Property Taxes Excise Taxes Estate and Gift Taxes Business and License taxes Customs Duties and Tariffs

33. Government Spending

34. Government Assistance Unit 3: Taxes Chapter 16: Section 3

35. Welfare Government programs that provide money, medical care, food, housing, and other necessities for people who cannot afford them – Also known as Public Assistance To be eligible, a family’s income and other financial resources must be near or below the poverty line – Poverty line is established by the Federal Government

36. Reason for Poverty Lack of skills to earn a living income Chronic illnesses Victims of crime Families of convicted felons Immigration Children (largest group living in poverty) – Single-parent households

37. Welfare (Public Assistance) Programs Temporary Assistance for Needy Families (TANF) Food Stamps Supplemental Security Income (SSI) Women, Infants, and Children Program (WIC) Head Start National School Lunch Program Public Housing Social Security (Disability and Survivor benefits) Unemployment Compensation