1. Taxes and Social Security
Chapter 23
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2. Objectives Describe the tax system and the services its finances
Complete a federal tax return
Describe how the Social Security system works
Identify Social Security benefits and state social insurance benefits
Describe the challenges facing the Social Security system today
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3. Understanding Taxes
Payments that you make to support the government and to pay for government services
Three levels of government: federal, state, and local
Internal Revenue Service (IRS)- government agency that collects federal taxes and oversees federal tax system
First…you may think the whole topic of taxes is confusing. The general structure and working of our tax system is easy to understand though.
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4. Types of taxes
Income taxes – percentage of taxable income you earn (ranges from 10-35%)
The more you make the more you pay!
Withheld from your paycheck
Social security taxes – you pay this so you’ll receive these benefits when you retire. Called (FICA Tax)
Sales taxes – added to price of something you purchase (Michigan = 6%)
Property taxes – main source of money for local governments. Based on value of your property (generally land and buildings)
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5. Where do tax dollars go? Education Transportation Safety Health
Military services
Postal services
Public schools and libraries
Ranging from roadways and mass transit to dams and airports
Including law enforcement and fire protection
Hospitals and medical research studies
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6. A good tax system… Fair Clear and simple
Collected at a convenient time
Stable
Flexible
Everyone who is able to pay should pay his or her fair share
4. Taxpayers should know in advance how much they’ll owe. If tax laws are always changing, people can’t predict how much money to budget for taxes.
5. When necessary, the government should be able to adjust the tax system to bring in more or less income. There are times when the government may need to raise more money.
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7. Understanding income tax returns
A form that shows how much income you received and how much tax you owe.
If your employer withheld more money from your paycheck that you owe, you will receive a tax refund.
Information you provide on W-4 form tells employer how much to withhold.
Name, address, SSN, marital status, # of allowances (deductions) you are claiming…the higher the number, less tax is withheld.
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8. Social Security Program that provides benefits for people of all ages.
Most of money that pays for Social Security comes from Social Security taxes.
Both workers and employers pay these taxes.
SSN is a permanent identification number.
Government uses it to keep track of your contributions and work history.
Work credits – measurements of how long you’ve worked.
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9. Types of benefits Disability
Person who cannot work because of a physical or mental condition. Amount of benefit is based on worker’s average earnings
Survivors’ benefits – paid to family of a worker who dies
Retirement benefits – paid to workers who retire.
Health insurance benefits (Medicare) – paid to people who need hospitalization or other medical care. Cover nearly everyone who is 65 or older
3. Retirement age for reduced benefits is 62. full benefits is age 65. that age will gradually rise to 67 by 2027.
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10. State-run social insurance programs
Unemployment insurance
Provides temporary income to workers who have lost their jobs.
Lost your job through no fault of your own
Funded by taxes both employer and employee pay
Workers’ compensation benefits
Paid to workers injured on the job (through no fault of their own) and to dependents of workers killed on the job
Benefits may include medical care, disability income, and other benefits
Funded by taxes paid by the employer
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11. Future of Social Security
System is going broke!
The taxes we pay provide benefits for workers who have already retired
When it’s your turn to retire, younger workers will pay the taxes to fund your retirement
Problems: people live longer so receive benefits longer, earlier retirements so paying less into system, U.S. birthrate is declining…fewer young workers paying FICA tax to support retired people in future
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