1. Take Charge

2.  Ability To Pay – a concept of tax fairness that people with different amounts of wealth or different amounts of income should pay taxes at different rates  Personal Assets include houses, cars, stocks, bonds, and savings accounts  Income includes wages, interest and dividends

3.  Benefits Received – a concept of tax fairness that people should pay taxes in proportion to the benefits they receive from government goods and services  Social Security  National Defense  Highways

4.  Direct Tax – a tax that cannot be shifted to others  Federal Income Tax – 1040 EZ  State Income Tax  Indirect Tax – a tax that can be shifted to others  Business Property Tax

5.  Excise Tax – a tax collected on the sale of particular goods and services, also called sin tax (certain percentage of the price)  Alcohol  Tobacco  Firearms

6.  Payroll Taxes – taxes collected from employers and employees to finance specific programs; levied on earned income  Unemployment Insurance  Workers Compensation  Social Security  Medicare Insurance

7.  Progressive Tax – one that imposes a higher percentage rate of taxation on persons with high incomes that on those with low incomes  $18,000 income is taxed 15% compared to $45,000 income is taxed 23%  Federal Income Tax is an example

8.  Proportional Tax – tax imposing the same percentage rate of taxation on everyone, regardless of income  $18,000 income AND $45,000 income taxed 6%  Local Property Tax is an example

9.  Regressive Tax – tax imposing a higher percentage rate of taxation on low incomes than on high incomes  $18,000 income purchases $9,000 on necessities $9,000 X 6.5% = $585 / $18,000 = 3.25%  $45,000 income purchases $9,000 on necessities $9,000 X 6.5% = $585 / $45,000 = 1.3%  State and Local Sales Tax is an example

10.  W-4 Form (Employee’s Withholding Allowance Certificate)– a form that helps the employer determine how much to withhold from an employee’s paycheck  W-2 Form – the form your employer sends to you and the IRS (Internal Revenue Service) at the end of the year that reports your annual wages, taxes withheld, and other information

11.  Earned Income – includes wages, salaries, tips, and net earnings from self-employment  Tips from a restaurant  Owning your own business  Unearned Income – income a person receives from certain bank accounts or from lending money to someone else  Interest earned of Savings Accounts  Dividends received off of stocks

12.  Dividends – a corporation’s distributions to its shareholders from its earnings and profits

13.  Individual Retirement Account – a special retirement planning account for individuals, all or part of the contribution in a tax deferred savings account may be deductible from current taxes, depending on the individual’s income and coverage by an employer- sponsored qualified retirement plan (like a 401-k)  Withdrawals are taxed as income

14.  Gross Income – money, goods, and property you received that must be reported on a tax return and may be included in taxable income  Adjusted Gross Income (AGI) – total income reduced by certain deductions such as for an IRA or student loan interest  Earned Income  Unearned Income

15.  Taxable Income – the income on which tax is figured  Wages  Dividends  Assets sold (real-estate or car)  Required by law to pay Capital Gains Tax ▪ Contractor builds a house and lives in it for 2 years instead of selling the house after completion will not have to pay Capital Gains Tax

16.  Tax Credits – a direct reduction of tax owed  Child Tax Credit ($1,000 for each child under age 15  Higher Education Credit (full time status)  Mortgage Interest Credit  Renewable Energy Credit  Retirement Income Credit

17.  Income Tax – Taxes on income, both earned and unearned income  Earned – salaries, wages, tips, commissions  Unearned – interest and dividends

18.  1040 EZ – the easiest federal income tax form that will be used to file your annual tax return  May be used if unmarried / married  Have no dependents  Maximum of $50,000 Earned and Unearned Income  Unearned Income maximum of $1,500 ▪ $50-100 Attorney Fee for simple form 1040EZ ▪ $350-$500 Attorney Fee for complex form 1040A / 1040

19.  Standard Deduction – an amount provided by law and based on filing status, age, blindness, and dependency that taxpayers can deduct from their adjusted gross income (AGI) before tax is determined  Single – $6,100  Married Filing Jointly / Qualified Widower – $12,200  Married Filing Separately – $6,100  Head-Of-Household – $8,950

20.  Dependent – a person who relies on someone else for support, a taxpayer may claim an exemption for a dependent if certain conditions are met (dependency tests), taxpayers cannot claim themselves or their spouses as dependents  Any child under age 19 living at home

21.  Exemption (Personal or Dependency) – amount that taxpayers can claim for themselves, their spouses, and eligible dependents, the total is subtracted from Adjusted Gross Income (AGI) before tax is figured on the remaining income  Federal Exemption – $3,900

22.  Earned Income Credit – a credit that can be paid to low-income workers, even if no income tax was withheld from the worker’s pay, to receive the credit a taxpayer must file a tax return

23.  Tax Liability – the amount of tax that must be paid, taxpayers pay their federal income tax liability through withholding and any payments beyond estimated income  $4,000 Income / $403 Federal Tax  $14,000 Income / 1,669 Federal Tax  $32,000 Income / 4,369 Federal Tax

24.  Voluntary Compliance – a system of compliance that relies on individual citizens  Report income freely and voluntarily  Calculate tax liability correctly  File a tax return on time (April 15 th )

25.  Withholding (Pay-As-You-Go) – money that employers withhold from an employee’s paychecks that goes to pay federal and state income taxes  Employers use W-4 form to figure this  Employers issue W-2 at the end of the year

26.  File A Return – to mail or otherwise transmit to an IRS service center the taxpayer’s information on returns  Filed on paper form  Filed electronically (e-file)  Filed by telephone (tele-file)

27.  Filing Status – based on a taxpayer’s marital status and other factors  Rate taxpayer will be assessed  Tax bracket taxpayer will be assigned

28.  Exempt (From Withholding) – free from withholding of federal or state income tax, must meet certain income, tax liability, and dependency criteria  Taxpayer must still pay Social Security