1. Tax Unit ObjectiveTax Unit Objective: Learn how the government taxes the US worker, what types of taxes there are and how to fill out a tax form Targets:  State the type of taxes and how income level effects how much you may pay.

2. The Taxes People Pay 52 Types at state and local level in Michigan 52 Types at state and local level in Michigan Income Tax  Earned (and unearned) income is subject to taxation Social Security Tax  6.2% of income is paid Medicare Tax  1.45% of income – no income cap State Income Tax  Varies state to state TX and FL no state income tax Sales Tax  Paying a % of money on goods and services Property Tax – based on value of property owned

3. Other Taxes Excise or Luxury or Sin Tax: tax paid when buy certain products, often deemed dangerous or unnecessary  Tanning, 10%  Gasoline Gasoline  Smoking - $0.10 a cigarette or $2 a pack Use Tax: applies to purchases when sales tax is not charged (6%)  Buy car not from a dealer  Renting rooms

4. Relationship of Taxes to Income Proportional or Flat taxes  TAKING THE SAME % OUT OF EVERYONE’S INCOME: Rate stays the same Example: A person who earns $25,000 paying the same rate as one who earns $75,000.  Example: MI State Income Tax – 4.35%

5. Relationship of Taxes to Income Progressive taxes  People with higher incomes pay a higher rate of taxation Example: US Personal Income Tax Regressive taxes  Tax which takes a larger % of low income salaries Example: Sales tax (Charge same % for all purchases)  Persons with incomes of 25K and 100K pays SAME $ of tax (if buy same item) Also – Social Security Tax !!

6. Tax terminology you need to know!  Tax Liability Tax Liability The amount of tax YOU OWE  Tax Deduction An expense that reduces your taxable income  Example: IRA, Student loan interest  Standard Deduction If you do not itemize deductions, this amount is automatically excluded from income tax  Tax Credit An amount DIRECTLY deducted from tax owed

7. Tax terminology you need to know! Tax Exemptions: Some income is exempt or excused from tax, based on number of people in the household.  Qualifiers: Spouse, Dependents Dependent  Person who relies on another taxpayer for at least ½ of his or her support  You can be claimed if under 19 years of age, or 19-24 years if a student

8. Tax terminology you need to know! Withholding: Amount taken from each check  Pay as you earn tax Allowances: Factors that affect how much tax is withheld from each paycheck  The more allowances / exemptions = less taken 0 or 1 = maximum amount withheld  Do you want to over or under withhold?  What is best?

9. FORMS W-4 Form  Fill out at start of a job  THIS FORM TELLS YOUR EMPLOYER HOW MUCH TAX TO HOLD FROM YOUR CHECK!  The more exemptions = lower the tax amount that is withheld from your paycheck Must be filled out before starting work

10. Other Important Information What is “TAX DAY?”  The day your taxes must be postmarked and mailed to the Internal Revenue Service (IRS)

11. Target Comprehend what the different forms are used for Use / fill out tax forms

12. Free File  Irs.gov Check your last year's tax return for a quick estimate of your adjusted gross income (AGI). Did you know:  Approximately 70% of all taxpayers have an AGI of $57,000 or less?  Income tax first appeared in 1862 to support the Civil War. It was eliminated in 1872, but came back between 1894-1895.  In 1913 it was brought back and provided a seemingly unlimited source of funds to the growing government

13. Can get more money back than pay Not often  Stimulus  EITC: Earned Income Tax Credit EITC: Earned Income Tax Credit Started to make it so you would earn more working than on welfare http://apps.irs.gov/app/eitc2011/SetLanguag e.do?lang=en http://apps.irs.gov/app/eitc2011/SetLanguag e.do?lang=en As a dependent you are not eligible

14. FORMS W-2 Form  Lists your wages and withholdings Fed Inc. Tax, Social Sec, Medicare  Will be mailed to you by your employer by Jan 31  ATTACH TO YOUR TAX RETURN

15. FORMS Form 1099-INT  Form sent by savings institution  State amount of interest earned during the year

16. EZ FORM…….use if  You are single or married, filing jointly  Taxable Income<$100,000  Earned under $1500 in unearned income (interest) Earned income: wages Unearned income: interest which is taxable  Do not have itemized deductions  Practice Problem Practice Problem

17. 1040A Form…use if Single, or married filing separately or jointly Have children or other dependents  Each exemption worth 3000 deduction Taxable income less than $100,000 Have Capital Gains income, IRA’s Do not have to itemize deductions

18. 1040 Form…use if You want to itemize deductions You have any amount of income (Including over $100,000- if you earn over this amount, you must use this form to file)