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Income Taxes

Income Taxes. Filing a Tax Return. Vocabulary. Gross earnings : Pay/salary before taxes Net earnings : Pay/salary after taxes Earned income : Pay that you receive for work. Unearned income : Money from investments. Taxable income : Gross earnings minus exemptions and deductions.

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Income Taxes

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  1. Income Taxes Filing a Tax Return

  2. Vocabulary • Gross earnings: Pay/salary before taxes • Net earnings: Pay/salary after taxes • Earned income: Pay that you receive for work. • Unearned income: Money from investments. • Taxable income: Gross earnings minus exemptions and deductions. • Withholding: A system where employers collect estimated taxes from individuals throughout the year and send that money to the government. • Tax return: A document that a taxpayer completes to calculate how much tax is owed, how much tax was withheld, and how much tax he/she overpaid or underpaid. • Payroll tax: Taxes that are collected by the employer directly and sent to the government.

  3. Pay Check Stub #1

  4. Pay Check Stub #2

  5. Pay Check Stub #3

  6. Federal Income Tax • What is taxed: Earned and unearned income • Computation: 1) Calculate taxable income by subtracting exemptions and deductions from “gross income,” then 2) use the tax table to find tax owed. • Time of collection: Tax is withheld from each paycheck by the employer and sent to the IRS. Tax return is filed by April 15 each year. • Progressive, Regressive, or Proportional? • Simple? • Fair?

  7. Social Security Tax • What is taxed:Earned income • Computation: Income * 6.2% (up to $106,800 of earned income) • Time of collection: The employer sends this payroll tax directly to the federal government. • Progressive, Regressive, or Proportional? • Simple? • Fair?

  8. Medicare Tax • What is taxed:Earned income • Computation: Income * 1.45% • Time of collection: The employer sends this payroll tax directly to the federal government. • Progressive, Regressive, or Proportional? • Simple? • Fair?

  9. PA Income Tax • What is taxed:Earned and unearned income • Computation: Income * 3.07% • Time of collection: Tax is withheld from each paycheck by the employer and sends the money to the PA Department of Revenue. A tax return is filed by April 15 each year. • Progressive, Regressive, or Proportional? • Simple? • Fair?

  10. PA Unemployment Tax • What is taxed:Earned income • Computation: Income * 0.09% • Time of collection: The employer sends this payroll tax directly to the state government. • Progressive, Regressive, or Proportional? • Simple? • Fair?

  11. County or Municipal Earned Income Tax • What is taxed:Earned income • Computation: Income * 1.0% in those counties or municipalities that collect it. Montgomery County does not collect EIT. UM doesn’t collect it. Bridgeport does collect it. • Time of collection: Tax is withheld from each paycheck. Tax return is filed by April 15 each year to the county tax collector. • Progressive, Regressive, or Proportional? • Simple? • Fair?

  12. Emergency Services Tax • What is taxed:Earned income • Computation: A flat dollar amount up to $52 per year. • Time of collection: The employer sends this tax directly to the municipal tax collector. • Progressive, Regressive, or Proportional? • Simple? • Fair?

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