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

2. Types of Pay Salary Wages
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

3. 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

4. How Employees Are Paid Time Direct Deposit Paycheck
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

5. Regulations Affecting Pay
Equal Pay
Minimum Wage
Overtime

6. 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

7. 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

8. 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

9. 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

10. 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

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

12. 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

13. W-4 FORM

14. Tax Withholding Tables for Employers

15. Do you claim 0 or do you claim 1?
PAYCHECKS
REFUND ↓ ↑ 1

16. 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?

17. 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?

18. 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

19. W-2 FORM

20. Getting Ready for Tax Time
Form 1099-INT
Interest Income
Your bank or investment company totals up all of your interest earned from your investment accounts for the calendar year
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

21. 1099 FORM

22. 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 15th most years
“Tax Day”

23. Completing Your Tax Return
Filing Status
Single or Married
Exemptions (individuals who rely on the taxpayer’s income) – personal information entered
Exempt – amount of income 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)

24. Completing Your Tax Return
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
Example: amounts contributed to retirement accounts & student loan interest

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 A & 1040 ($4,000 in 2015 tax year)
Taxable Income
The portion of your income that is actually subject to income tax
Tax – 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 Ability-to-pay 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. Redistribution of Income
Also known as Redistribution
the transfer of income and of wealth from some individuals to others by means of a social mechanism such as taxation, welfare, public services, or monetary policies
Example: Social Security
One of the government’s roles in our economy
A unique quality of the U.S. economy

36. 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

37. 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

38. 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