1. Taxes

2. 5.1 – Taxes and Your Paycheck Payroll taxes Based on earnings Paid to government by you and employer Income taxes You pay on income you receive Varies on financial and family situation You are responsible for calculating!

3. 5.1 – Taxes and Your Paycheck FICA – Federal Insurance Contributions Act Social Security 4.2% of gross income Medicare 1.45% Withholding Money taken from paycheck and paid to the state or federal government Avoids having to pay government all at once State of Illinois Tax Rate 5.0%

4. Your Paycheck Stub Gross income Withholdings Net income

5. Withholding Withholding too much Payroll calculated on ANTICIPATED annual salary Results in a refund Withholding too little Funds paid to government when taxes are filed Reduce allowances Specify extra $$ withheld on W-4 The lower the number of allowances the more money that is taken out of your take home paychecks

6. Terms Allowance Number that reduces the amount of money withheld from your pay The larger the allowances the less amount withheld Examples Kids, Wife, Husband, Family Member W-4 Form that the employer uses to know what the withholding allowance will be for each employee You are responsible for proper withholdings IRS Agency that collects income tax

7. 5.2 – File a Tax Return Must make at least $9,350 Tax return – set of forms that taxpayers use to calculate their tax obligation If you owe – you pay If you overpaid – you receive By April 15!!

8. Documents W-2 Amount of your tax withheld from the previous year Employer must send you the form by Jan 31 st Form 1099-INT Form 1040 - Deductions Form 1040-EZ You are single or married filing jointly You have no dependents (people you support financially) You and your spouse are under 65 Neither you nor your spouse is blind Your taxable income is less than $100,000 You earned no more than $1,500 in interest You had no income other than wages, interest, tips, scholarships, or unemployment compensation

9. 1040EZ Adjusted Gross Income Deduction Standard deduction – amount you may subtract from your adjusted gross income Taxable Income Federal Income Tax Withheld Earned Income Credit Exemptions The number of people the taxpayer are supporting.

10. 1040EZ Total Payments Tax Refund/Owe? Electronic funds transfer Sign Check for errors *If someone else can claim you then the back needs to be filled out*

11. 5.3 – Taxes and Government Benefit Principle Those who use a good or service provided by the government should pay for it. Example: Roads Ability to Pay Principle Make more, pay more Example: Federal Income Taxes Taxes can increase from 15 % to 39.6 %

12. $8,925* to $36,250:15% $36,250 to $87,850:25% $87,850 to $183,250:28% $183,250 to $398,350:33% $398,350 to $400,000:35% $400,000+:39.6%

13. Taxes and Income Progressive taxes Have a higher tax, the more you earn Higher tax brackets, for example (15 to 39 %) Federal income tax Regressive taxes Less taxes (in %) the more you earn Claims the greatest percentage of money from people of lower incomes than those with higher incomes Sales Tax Proportional taxes Same share of all people’s income

14. Collection of Taxes Direct taxes Federal Income taxes Property taxes You pay Indirect taxes Someone else pays Businesses – sales taxes

15. Types of Taxes Income taxes Federal, state, and local Sales taxes Property taxes Excise tax On sale of specific goods and services - tobacco, gas, alcohol Estate (death) and gift taxes ($10,000) Business and license taxes

16. 5.4 – Government Spending The Power to influence “Sin” tax Tax Cuts Charities Public goods Roads, schools, national defense, various regulatory agencies Social Security and Medicare (37% of spending)

17. Government Spending National Defense, Veterans, and Foreign Affairs Social Programs Net Interest on the Debt Physical, Human, and Community Development Law Enforcement and General Government