1. Chapter 5 TAXES!

2. Ch. 5.1: Taxes and Your Paycheck?

3. What comes to your mind when you think of the word “TAX” ?
Bell Ringer- 2/23/15
What comes to your mind when you think of the word “TAX” ?

4. Payroll Taxes Placed on income earned by individuals
Largest form of revenue received by government
Amount taken out of each check varies- base on a person’s annual earnings
Paid to the government by individual employees and their employers.
Medicare and Social Security

5. Income Taxes Taxes you pay on most types of income you receive.
The amount paid by each individual varies based on their income

6. Payroll Tax vs. Income Tax
Includes FICA taxes and Income Tax
Also includes amount paid by employer based on employees earnings
Income Tax
Federal Income tax deducted from paycheck

7. Pay Stub Social Security Largest Deduction
FICA (federal insurancecontribution Act) includes social security and medicare (sometimes)
Largest Deduction

8. FICA Federal Insurance Contribution Act
Law that requires workers and their employers to contribute to Social Security and Medicare
Social Security is a program that helps provide benefits to those who have retired.
Medicare provides health insurance for seniors over the age of 65 as well as certain people with disabilities

9. Withholdings Money that is withheld from your paycheck
Enables government to collect taxes at a steady rate (each pay period) instead of at the end of the year
You pay little tax with each paycheck, so you don’t face a huge tax bill at the end of the year.

10. Gross Income/Gross Pay
Amount earned before taxes have been withheld

11. Net Income/ Net Pay
Amount you receive after withholdings are subtracted from your gross pay

12. Paystub Activity Pay Stub Activity Work on Paystub Activity 1 as class
Complete Paystub 2 individually
Social Security

13. W-4 Form Form filled out when you are first hired at a company
Provides information your employer needs to determine how much to withhold from your paycheck

14. Allowances
A number that reduces the amount of income withheld from your paycheck
Claiming a lower number on your W-4 form will result in MORE money being withheld from your paycheck… but also may mean you will get back more money at the end of the year.
The lowest number you can claim is 0
Highest you can go up to is 9… but you need to show proof to IRS for this..

15. IRS Federal agency that collects income taxes
Agency in the department of treasury
Headquarters: Washington D.C.
Each year the IRS calls thousands of taxpayers for an audit
Examination of their tax return

16. W-4 Simulation

17. Chapter 5.2 File A Tax Return

18. Bell Ringer- 02/24/15
How do taxes benefit both you and the government?
Think about this… Kelly has $12.11 withheld from her paycheck for taxes… if she didn’t have this withheld, how much would she have owed at the end of the year? (hint- there are 52 weeks in a year!)
$12.11 X 52 weeks= $629.72

19. Tax Return
Set of forms a taxpayer uses to calculate their obligations (what they owe/don’t owe)
This is the only way you can get money back. (Usually during Feb-April)
You are responsible for information on tax return, if it is incorrect you are liable!

20. Tax Refund
If your tax return shows you paid more money in withholdings than you owed, you will receive a refund!

21. Taxes Owed
If your tax return shows that your withholdings were not enough to cover the taxes you owe, you must send the remaining amount to the government.

22. Social Security Number
Unique number assigned to you by the federal government
No one else has the same number
The government uses this number throughout your life to:
Identify you as a taxpayer
Keep track of your earnings and tax records
Pay you social security benefit when you reach retirement

23. W-2 Form Summary of your earnings and withholdings for the year.
You will receive a W-2 for each job you held during the year.
When you file a tax return, you must include your W-2!

24. W-2 Form
Wages/Tips
Fed. Income Tax
Employer
Employee

25. W2 Form Vs. W4 Form W-2 W-4 Used By: Information found on form:
Employer reports wages earned by employee for the year
Employee to report what they want withheld from their paycheck through selection of marital status and dependents
Information found on form:
Identifies information about the employee, the employer, and wages and deduction breakdowns for the employee for the year.
Name, address, Social Security number---and withholding allowance information.
How often is it filed?
Once a year
As many times as the employee would like- Always at beginning of employment

26. W2 Form VS. W4 Form W-2 W-4 Who sees the form?
Employer files form with IRS and state taxing authority. Employer also MUST give copies to employee at end of the year.
Stays in hands of the employer- sometimes the IRS may request a copy.
Who is responsible for completing the form?
Employer- gives one copy to IRS and one copy to employee
Employee is responsible for completing it.
Employer is responsible for keeping a copy on hand

27. 1099 Form
If you have a savings account or any other investments where you earn money- you will receive a 1099 Form at the end of the year.
Statement of the interest your bank paid on your savings that year

28. 1040EZ Simplest Tax Return Form To qualify the following must be true:
You are single or married filing jointly with spouse
You have no dependents
You and your spouse are under 65 yrs
Neither you nor your spouse is blind
Your taxable income is less than $100,000
You have earned no more than $1,500 in interest
You have no other income besides wages, tips, scholarships, or unemployment

29. Dependent Dependent Independent People who are supported financially
Someone who is not supported by anyone else financially

30. Forms, Forms, FORMS! W-4 W-2 1099 1040EZ
Determines how much to withhold from your paycheck.
Given by yours employer. Summary of how much money you made at a particular company and how much tax was taken out of your paycheck.
Form you receive at the end of the year that shows if you made money (interest) on an savings accounts.
Also can be given if you were paid money (over $600) but not taxed.
Tax form filled out at the end of the year to determine if you get a refund or owe money.

31. 1040 EZ Scenarios 1040 EZ Form 2012 Tax Table
Jonathon Jackson is a full time high school student. He has a part time job working at the local grocery store each day after school. Last year Jonathon earned $1,525. He is filling out an early tax return, and he is having his refund deposited directly in his Chase bank account in order to receive it as quickly as possible. His savings account number is and the bank routing number is Jonathon’s parents claim him as a dependent on their federal tax return.
Use the information given in the scenario and Jonathon’s W-2 to complete a 1040EZ form.
1040 EZ Form
2012 Tax Table

32. Deductions
Expenses the law allows you to subtract from your adjusted gross income to determine you taxable income
4 kinds of deductions:
1. Business Deductions
Traveling, meals, gifts, use of car, health insurance, use of home, education, employee pay, etc.
2.Adjustments
IRS or Alimony payments
Itemized/ Standard
Exemptions
You, your spouse, children

33. Examples Of Itemized Deductions
Medical/dental expenses
State and local taxes
Property tax
Mortgage interest
Gifts to charity
Losses from theft or property damage
Moving expenses
Investment expenses
You cannot use the 1040EZ form if you are choosing to itemize your deductions!

34. Standard Deduction
Specific dollar amount that you are allowed to subtract from your taxable income. A base amount of income that is not subject to tax and that can be used to reduce a taxpayer's adjusted gross income.

35. Standard Vs. Itemized Deduction
Set dollar amount- $9,500 (2012)
Itemized
Allows you to list expenses
If your expenses add up to MORE than what the standard deduction would be, then you should choose to Itemize your deductions
YOU HAVE TO CHOOSE ONE OR THE OTHER! YOU CANNOT DO BOTH!

36. Taxable Income Income figure used to determine your taxes
Your adjusted gross income minus your Standard Deduction

37. How to fill out a 1040EZ!

38. Things you will need…. 1040 EZ Form W-2 Form 1099 Form Tax Table
This is REQUIRED in order to fill out your 1040EZ
1099 Form
If you have one!
Tax Table

39. Step # 1: Fill In Your Basic Info!
Name (first and last)
Address
Social Security Number

40. Step #1-4 1. Fill in Total Wages, Salaries, Tips
2. Fill in Taxable Interest Income
From 1099 form (interest from bank account)
3. Fill in Unemployment Compensations
Add them all up and you will get… -Adjusted Gross Income

41. Step # 5
If you are an independent and single you will put $9,500 on line 5
If you are an independent, you will flip your sheet over to the back and fill in worksheet 5!

42. Step # 6
Subtract like 5 FROM line 4
This is your taxable Income!

43. Step # 7 -Federal Income Tax Withheld
This will be found on your W-2

44. Step #8 Earned Income Credit
Workers with low incomes will qualify
**We will not be spending time on this…
Leave it blank!

45. Step # 9- Total Payments & Credit
Add up the following:
Federal Income Tax Withheld (#7)
Earned Income Credit (#8)
This will result in the total amount of your taxes that you have ALREADY PAID!

46. Step # 10- Tax Table http://www.irs.gov/pub/irs-pdf/i1040tt.pdf
Use the tax table to determine how much tax you can subtract from your total payments and credits

47. Step # 10 Continued…

48. Step # 11– Refund?!?!
If line 9 is larger than line 10, subtract line 10 from line 9.
This is the refund! $648.00!!

49. Chapter 5.3 Taxes and Government

50. Agenda 2/25
Bell Ringer
Giovanni Scenario
Sarah Marshall Scenario

51. Bell Ringer- 02/25/15
Sarah earned $45,000 last year. When she calculated her taxable income, she found that she owed the government $12,000 in taxes for the year. Sarah already had $7,000 withheld from her paycheck for federal taxes. She owes the federal government an additional $5,000. What is her income? $45,000 What is her tax liability? $ 12,000 What is her withholding tax? $7,000 What is her tax due? $5,000

52. Sources Of Government Revenue
20% of ALL income goes to Federal Gov’t
39% accounts from income tax
32% is from Social Security and Medicare
13% corporate taxes
7% is other taxes and fees

53. Sources of Government Income
Corporations pay a marginal tax rate anywhere from 15 to 35 percent based on their profit. The more they make, the more they pay.

54. Contributions Social Security Medicare
Wages are taxed at a rate of 6.2%
Collected on gross income
Medicare
Wages are taxes at a rate of 1.45%
The total most people pay for SS and Medicare is 7.65% of gross income

55. Employer Contribution
For each dollar you earn, your employer will pay 15.3 cents to the government for social security and Medicare taxes.

56. Principles Of Taxation
Law that states every taxpayer should be treated equally
This does NOT mean all taxpayers should pay the same amount.
This law states that some people should pay MORE than others.

57. Benefit Principle
States that those who use a good or service provided by the government should pay for it.
Example- Toll Roads
Those who drive on the road pays tolls.

58. Ability To Pay Principle
Those who have larger incomes should pay a larger share of what they receive.
Example: Federal Income Tax

59. Progressive Tax Regressive Tax Proportional Tax
Taxes and Income- 3 ways
Progressive Tax
Regressive Tax
Proportional Tax

60. Progressive Tax Takes a larger share of income as income grows
Federal income tax- The more you MAKE the more you PAY

61. Regressive Tax Takes a smaller portion of income as income grows
Sales tax
Lauren makes $16,000/ year
Sal makes $45,000/ year
They both buy a car for $10,000 and have to pay 8% ($800) in sales tax.
$800 It is 5% of Laurens income but only 1.8% of Sal’s income

62. Proportional Tax Takes the same share of ALL incomes.
This would occur if people were ALL taxed for example 10% of their income for something.
This does not exist in our economy.

63. How Taxes Are Collected
Direct Tax
Paid directly to government
Ex: Income and Property Tax
Indirect Tax
Included in cost of goods and services
Part of rent is used for landlord to pay property tax
Pay-As-You-Earn Taxes
Paid as you earn income
Federal Withholding Tax

64. Types of Taxes Income Taxes Sales Tax Property Tax Excise Tax
Estate and Gift Tax
Business and License Tax

65. Types Of Taxes Income taxes Sales Taxes Withheld from paycheck
Ex. Federal, state, local taxes
Illinois State - 5.0%
Local taxes ~ 1-2%
Sales Taxes
Taxes added to price of goods and services
Some states don’t have sales tax but they pay more money in property or income tax to off set what they lose in state tax.

66. Types Of Taxes Property Tax Excise Tax
Taxes on the value of real property
Added to home or loan payments
Excise Tax
Collected on the sale of specific goods and services such as tobacco, gasoline, and alcoholic beverages
Unlike sales tax, excise tax is included in the price charged to customers.
Ex, when you pay for gas- the price includes both federal and state excise tax.

67. Types Of Taxes Estate Tax Gift Tax
Property tax given to someone legally entitled to an estate when a person dies.
Gift Tax
Taxes the giver of gifts may pay
Federal law allows people to make some gifts that are not taxes
Maximum value of gifts that were not taxed was $12,000 in 2008.

68. Types Of Taxes Business or license tax
Paid to receive licensing or a permit to operate a type of business
Ex. To be a teacher you have to take certification test which you pay for.

69. Customs Duties and Tariffs
Customs Duties or Tariffs
Controls the flow of products imported into the united states
This results in items from abroad being sold at higher prices than they otherwise would be.

70. Skittles Activity All students will be given a bag of Skittles
DON’T EAT THEM!
Count your Skittles
Fill out the Worksheet that goes along with this activity!

71. Chapter 5.4 Government Spending

72. Bell Ringer- 2/24 You Cut The Taxes!
Assume you are a member of congress. You have been instructed by your constituents to cut taxes. In order to cut taxes, you must cut programs.
Read the descriptions of each program and decide with three programs you will want to keep and which three you want to cut and explain why…

73. Power To Influence Government use tax to do 2 things Generate Revenue
Influence consumer buying decisions
Example: “Sin Tax”
The government taxes certain products to discourage their use because they are harmful to our bodies even though they are legal
Millions of Americans buy and use these products anyway
The government taxes these products higher because it is a choice to use them- not everyone uses them.

74. Government Spending
The federal government spends $2.65 trillion each year
Roughly $15,000 for every person who lives in the United States
Most of the government’s spending pays for goods and services that benefit all Americans.
Public Goods: Roads, schools, national defense, and services of various regulatory agencies.

75. Taxes Fund Public Goods and Services
Social Security, Medicare, and Retirement
36%
National Defense
23%
Foods Stamps and Unemployment
(Social Programs)
19%
Taxes are required payments of money to various levels of government.
Taxes provide revenue for public goods and services that benefit the community and the nation as a whole.
Taxes help support goods and services such as our national defense, state and local police and protection agencies, health care, public education, financial aid for the disabled and unemployed, and social services for low-income families.
The amount of revenue raised by taxes determines the amount of services the government can afford to provide.
State and Local Police
Net Interest on Debt
Public Education 2%
12% 8%

76. Goods and Services State and Local Government Provide…
Building and maintaining roads
Operating police and fire protection system
Maintaining a criminal justice system
Building and staffing schools
Building and operating state colleges and universities
Supporting medical facilities
Constructing and operating sewage treatment plants
Operating unemployment compensation programs

77. State and Local Gov’t Regulations
Rules are written into laws enforced by state and local government
Example:
In order to drive, you must have a drivers license
To build a house you must have a permit
These create order and safety in the state and local communities

78. BINGO! Allowance Gross Income Business or license Tax Income Tax
Custom duty or tariff
Dependent
Deduction
Estate tax
Excise tax
FICA
1040EZ Form
1099 Form
W-2 Form
W-4 Form
Gross Income
Income Tax
IRS
Gift Tax
Net income
Payroll tax
Property Tax
Public Good
Sales Tax
Social Security Number
Tax Return
Taxable Income
Withholding

79. 03/04/13 Life-Smart Project Review Chapter 5 Complete Tax Page 3
Review Worksheet
Look over 1040EZ Scenarios
TEST TOMORROW!

80. Question 21-24- Word Bank A. Tax Return B. Refund C. Taxable Income
D. Exemption
E. Deduction
AB. Owe
AC. Adjusted Gross Income
AD. Withholding