1. Personal Finance: Module 1 Lesson 4 Tolls Along the Way

2. Taxes, after all, are dues that we pay for the privileges of membership in an organized society. Franklin D. Roosevelt, 32 nd President Tolls Along the Way Slide 2 “ ”

3. What are Taxes?  Taxes are required monetary payments to a government.  Governments uses taxes to pay for and to provide services designed to protect and enhance the life of its citizens. Tolls Along the Way Slide 3

4. The History of Taxes  Systems for collecting taxes date back to ancient civilization.  Taxation of income in the United States began in the 19 th century.  The Internal Revenue Service (IRS) is the tax collection agency for the U.S. federal government. Tolls Along the Way Slide 4

5. Why do we pay taxes?  We pay taxes because the services they provide are necessary and essential for all citizens.  The price of these services would be too high for most citizens to provide these services just for their family! Tolls Along the Way Slide 5 Your role as a taxpayer Why Pay Taxes?

6.  Progressive Tax System  Based on the individual’s ability to pay  Lower income earners pay less tax  Income tax is an example of a progressive tax  Regressive Tax System  Tax percentage is same regardless of income  Places a greater tax burden on those with less income  Sales tax is an example of a regressive tax Tolls Along the Way Slide 6 United States Tax Systems

7.  Each branch of government usually collects a separate set of taxes to fund it’s operations.  However, taxes collected at one level may also be combined to help fund programs at another!  Federal (U.S.)  State  Local (county & city) Who collects taxes? Tolls Along the Way Slide 7

8. Tolls Along the Way Slide 8  Property Taxes are paid by people who own property (land, a home, or real estate).  Transaction Taxes are paid on goods and services. o Sales Tax is charged when a consumer makes a purchase. This tax is a percentage of the total price of the purchase. o Excise Tax is charged on the purchase of specific goods such as motor fuel, cigarettes, or alcohol. This tax is usually included in the price of the item. Taxes Collected by a County or City What is taxed and why Federal/State/Local Taxes

9. Tax Terms  Withholdings – money that is required by law to be deducted from an employee’s pay  Income Tax (Federal & State) *  Social Security Tax  Medicare Tax  Gross Income – employee’s total earnings  Net Pay (also called take-home pay) – money remaining after withholdings and other deductions are subtracted Tolls Along the Way Slide 9 *Not all states collect a separate state income tax!

10. Tolls Along the Way Slide 10 income  Federal income tax is the largest tax amount deducted or withheld from your paycheck.  The amount withheld is based on the employee’s income income and number of allowances.  Allowances reduce the amount of federal income tax withheld from your paycheck. Allowances are claimed when an employee completes the required IRS Form W-4 Employee Withholding Allowance Certificate. Federal Income Tax

11. Tolls Along the Way Slide 11 To view W-4 worksheet: Form W-4 Employee Withholding Allowance Certificate Form W-4

12. Tolls Along the Way Slide 12  Most−but not all−states have an income tax.  State income tax is also withheld and reported on W-2.  If state requires it—also complete a state income tax return it to your state’s Department of Revenue.  State income taxes fund many of the same types of programs and projects as federal taxes! State Income Tax

13. Additional Payroll Taxes  Social Security Tax provides income for retired workers and their dependents as well as for the disabled and their dependents.  Medicare Tax pays for health insurance to offset the cost of medical care for retired persons (and their spouses) who are eligible to receive Social Security benefits. Tolls Along the Way Slide 13

14. Tolls Along the Way Slide 14 Example of a Paycheck Stub Employee Name Employee ID Pay Period John Doe002582/10/13 – 2/23/13 EarningsHoursRateGross IncomeYear-To-Date Regular80$15.00$1,200.00$4,800.00 Taxes Federal Income Tax $74.54$298.16 Social Security $48.30$193.20 Medicare $16.68$66.70 State Income Tax $29.76$119.04 Benefit Deductions Health Insurance$120.00$480.00 Dental Insurance$10.00$40.00 Life Insurance$15.00$60.00 401(k) Retirement Plan$50.00$200.00 Net Income $832.90$3,331.60

15. Tolls Along the Way Slide 15 Links and Activities These links and activities help you understand more about withholdings and other payroll deductions: Payroll Taxes and Federal Income Tax Withholding What Ate My Paycheck? Read and Interpret Pay StubsRead and Interpret Pay Stubs (pages 5-7) Understanding My Pay Stub

16. Tolls Along the Way Slide 16 Filing Your Income Taxes Form W-2 Wage and Tax Statement Lesson with worksheets Payroll Deductions and Earning Statements Shows taxable income actually received (#1) Shows total amount of income taxes already withheld (#2)

17. Tolls Along the Way Slide 17 Filing Your Income Taxes Once you receive your W-2 form, the IRS expects you to: 1.Fill out an income tax return and calculate the correct amount of federal income tax that should be owed (or refunded). 2.File it (electronically or by mail) by the deadline (which usually falls on April 15). Wage and tip income Using Your W-2 to File Your 1040EZ

18. Tolls Along the Way Slide 18 Filing Your Income Taxes  1040 1040  1040EZ 1040EZ  1040A 1040A Tax basics The Final Step: Filing Taxes Tax Return Forms ? ?

19. Tolls Along the Way Slide 19 Taxes, after all, are dues that we pay for the privileges of membership in an organized society. Franklin D. Roosevelt, 32 nd President  What do you think he meant by “an organized society”?  Without taxes, where would you go to school? What would you do with your trash? Who would build the roads, bridges, and interstates you travel on? “ ”

20. Financial Education for College Access and Success For this project, the PR/Award Number is V215W100015 and the Department of Education is the funding agency. This information is provided for the reader's convenience. Tennessee and the U.S. Department of Education are not responsible for controlling or guaranteeing the accuracy, relevance, timeliness, or completeness of this information. Further, the inclusion of information or Web site address does not reflect the importance of the organization, nor is it intended to endorse any views expressed or products or services offered. Tolls Along the Way Slide 20