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Ch.5 Taxes: How Much of Your Income Will You Keep?

Ch.5 Taxes: How Much of Your Income Will You Keep?. 5.1 Taxes and Your Paycheck 5.2 File a Tax Return 5.3 Taxes and Government 5.4 Government and Spending. 5.1 Taxes and Your Paycheck. 5.1 Vocabulary Words

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Ch.5 Taxes: How Much of Your Income Will You Keep?

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  1. Ch.5 Taxes: How Much of Your Income Will You Keep? 5.1 Taxes and Your Paycheck 5.2 File a Tax Return 5.3 Taxes and Government 5.4 Government and Spending

  2. 5.1 Taxes and Your Paycheck 5.1 Vocabulary Words Directions: Write each word with the full definition. Then write a sentence using the vocabulary word. • Payroll tax – • Income tax – • Federal Insurance Contributions Act (FICA) – • Withholding -

  3. 5.1 Taxes and Your Paycheck 5.1 Vocabulary Words Directions: Write each word with the full definition. Then write a sentence using the vocabulary word. • Payroll tax – • Income tax – • Federal Insurance Contributions Act (FICA) – • Withholding -

  4. 5.1 Taxes and Your Paycheck Payroll Taxes • Are placed on income earned by ________ • Amount based on individual’s total earnings & tax laws that apply to type of income • Paid to government by individual employees and their ________________________ • Income taxes – pay on most types of income you receive. • Not a fixed ________________________ • Share varies, depending on each taxpayers financial & family situation • In 2008, ranged from 10 – 30% • FICA – law that requires workers and their employers to contribute to Social Security and ____________________________ • Withholding • Income withheld from paycheck goes to prepay federal income tax & social insurance _____________________ • Makes sure government collects taxes at steady rate & more likely people will pay taxes • Your Paycheck Stub • Shows gross income & withholding • Gross Income – • Net Income – • Shows what else was withheld

  5. 5.1 Taxes and Your Paycheck • Form W-4 • Fill out when you are hired for a job • Required by __________________ • Gives info needed to determine correct amount to withhold from check • Your Responsibility for Proper Withholding • You’re responsible for consequences if form is ______________________ • If amount paid to government not enough, then you owe at end of year • Allowances • worksheet provided with W-4, tells how to calculate # of allowances to ___________________________ • More __________________ claimed, smaller amount withheld will be • Will not change amount of taxes owed • If do not pay enough in taxes, then owe at end of year • Adjusting Your Allowance • W-4 does not consider special situations • Withholding Too Much • Students often have too much withheld because work more during summer • Summer you may work 40 hrs so percentage based on that for whole ________________ • Withholding Too Little • Allowance calculated may result in too little _________________________________ • Can avoid paying large bill by: • Sending extra tax payments to the IRS • Claiming fewer allowances • Specifying extra amount to be withheld from each paycheck on your ___________ Wkst. – fill in W-4 form

  6. 5.1 Taxes and Your Paycheck • Over withholding as a Way to Save • Some choose to “over withhold” as a way to _________________ • Claiming too few allowances means a refund at end of year • Not good from financial point of _______________________ • Because if you put that money in a savings account, you make money or interest off of it. • Reduce withholding to be more in line with what owed by claiming additional _____________________ • Goal – make withholdings almost exactly equal to what you ____________ • Home Work – p. 162, Questions #1 - 7

  7. 5.2 File a Tax Return • Tax Return – • Form W-2 – • Form 1099-INT – • Form 1040EZ • Dependent

  8. 5.2 File a Tax Return 15. Deduction – 16. Social Security Number – 17. Taxable Income -

  9. 5.2 File a Tax Return • Your Income Tax Return • If you have income, you must file a tax ________ • Income more than just wages • All income you receive is ________________ • A tax return is a set of forms to calculate obligations • Not required to fill out if earned less than minimum ______________________ • Shows whether you owe the government or they owe you • Sources of Information for Your Tax Return • Form W-2 • Must have from employer by January 31st • Will get for each job you hold for the fiscal _______________ • When filing, you get a copy and the IRS gets a copy • If you do not file, IRS will let you ________ • Form 1099-INT • Will receive from bank stating what interest you earned from _________ __________ • This is all a younger person usually needs • Income tax forms • The EZ way – must meet __________ • You are single or married filing jointly with your spouse • No __________________ • You and spouse under ________ • Neither you or spouse are blind • Have taxable income of less than $_____________________ • Earned no more than $1,500 in interest • You had no income other than wages, interest, tips, scholarships, or unemployment ___________ • Form 1040A & 1040 • May use if : • Older • Have children • Invest in stock __________ • Allows you to list or itemize deductions to reduce amount you owe • http://www.ehow.com/video_22597967_file-1040ez-dependents-worksheet.html

  10. 5.2 File a Tax Return • How to Complete a 1040EZ • Identify Yourself • Need name, address, and social ___________ _____________ • Below ID number, is checkbox presidential elections – check box to contribute to ______________ • Income • Total Wages, Salaries, & Tips • Income received for over one _______________ • Calculate total earnings from all W-2 forms • Taxable Interest Income • Fill in amount of interest reported on your ___________________ • Unemployment Compensation • Fill in amount of any unemployment compensation received • Adjusted Gross Income • Add income from lines 1, 2, & 3 together = adjusted ___________ _____________ • Record on line 4 • Determine Your Deduction • If parents claim you as dependent, you cannot claim • If no one else claims you, enter the amount ____________________. • Forms allow tax payers to deduct those they support • Reduces amount of income on which they must pay ________________ • Standard deduction – amount that all tax payers may subtract from adjusted gross income • Amount varies according to filing status • The form will tell you what to do depending on filing ______________________

  11. 5.2 File a Tax Return • Your Taxable Income • Line 5 subtracted from adjusted gross income = __________ __________ • This is the income figure used to determine your taxes • Payments and Tax • Federal Income Tax Withheld • The next step on form that goes on line 7 • Total withholding for year is in box 2 on your ____________ for each job • If had more than one job, need to add up all of box 2’s • Earned Income Credit • Use if have low _______________ • Use line 8a • Treated as if an additional tax _______________________ www.youtube.com • Total Payments • Line 9 – will add withholdings and earned income ________ • Result is total amount of taxes already paid • Tax - http://www.irs.gov/pub/irs-pdf/i1040tt.pdf • 1040EZ contains table that tell you your total tax for year • Taxable income recorded on line _____________ • On table, locate two numbers within your _____________ income falls. • Then find, in the next column, what applies to youof a

  12. 5.2 File a Tax Return • Math of Money, p. 169 Use the tax table on p. 168. Your W-2 form reports that you made $35,539. Your W-2 form also reports that $4,053 was withheld from your wages for federal income tax. You receive a 1099-INT from your bank that tells you your interest income was $281. You are single and are not claimed by any other person as a dependent. 1. How much is your adjusted gross income? _______ + ________ = ______ 2. How much is your taxable income ________ - ________ = ______ *Use this answer to do answer # 3 3. What is your total tax for the year *use the tax table on p. 168 • What is the amount of your payment or refund? _______ - ________ = ______

  13. 5.2 File a Tax Return • Refund • Deposit Your Refund Electronically • have option of depositing electronically into checking or savings ________________ • You need the routing number, banks electronic address for fund transfers, to have directly deposited • Also need savings/checking _________________ • Amount You Owe • If withholding is less than tax calculated for line 10, you would record number on line 12. This is amount you _________________ • Sign Here • Must sign name with ___________ hand writing • Must write in date • When signing, saying that you are who you say you are • Check for Accuracy and File Your Return • If a mistake is made, then you may have to pay a penalty or receive a lower ____________________________ • If owe money, write a check to IRS or give credit card number • If paying with credit card, may be charged additional fee of __________% • The due date is April _______ unless falls on Sunday or a holiday

  14. 5.2 File a Tax Return • Self-Employment Tax • People who work for themselves pay ___________ _______ • Paying on a Quarterly basis • Must earn more than $400 in a year • Must use form ______________ • Must pay every 3 months • Up to you to remember to pay • Schedule C • Required to attach schedule C because of limited _____________ • Must keep detailed records of business expenses • The amount determined as net of loss on form written on line 12 of _____________________ • Self-employed pays same taxes as __________________________ • Difference is self-employed have to withhold their taxes and pay ________________________

  15. 5.2 File a Tax Return • Electronic Filing • May file _________________ • More than 60% filed online in 2006 • Takes 3 weeks or less to get refund ______________ • Can purchase software to do it on own(ex. Quicken, Tax Pro) • There are also ______ ______ • Can get tax refund loan • They give you less than ____________ from refund, and take whatever you owe when comes in Assignment: Do questions 1 – 6 on page 172

  16. 5.3 Taxes and Government • Sales Tax - • Property Tax – 20. Excise Tax – 21. Estate Tax – 22. Gift Tax

  17. 5.3 Taxes and Government 23. Business or License Tax – 24. Customs Duty or Tariff -

  18. 5.3 Taxes and Government • Social Security and Medicare • Contributions to Social Security • FICA regulations – wages taxed at _________ • Collected on gross income up to max level & adjusted for inflation each year • 2008 – maximum income taxable was $____________________ • Contributions to Medicare • 1.45% taken • total percentage for both is __________% • Employers Contribution • Match ___________________ • for each dollar up to max of 15.3 cents – employee=7.65, employer=7.65 • _____________must pay all of 15.3 cents • half payments can be subtracted from adjusted gross income to reduce income taxes • Sources of Government Revenue

  19. 5.3 Taxes and Government • Classifying Taxes • Three different ways to group taxes • _________________ • Every taxpayer should be treated equally • Benefit Principle – those who use gov’t services should pay for it(ex. Toll road) • Ability-to-pay principle – larger income pays larger share • Ex. Fed. Gov’t – range ___ -____% based on amount made • Taxes and Income • Progressive taxes • Take larger share of larger incomes, ex. Salary went from ________to ___________ • Regressive Taxes • Take smaller share of higher incomes than ___________ • Ex. Louisa make 16,000 per year, Ray makes 45,000 per year. Both buy cars for 10,000 at .08% sales tax. This takes 5% of Louisa’s income vs. 1.8% of Rays • Proportional Taxes • take same share of all ______ • No perfect examples of this in our country • The only difference between the three is the ____________of different incomes that it takes

  20. 5.3 Taxes and Government • How Taxes are Collected • Direct Taxes – income and property paid directly to ______________ • Indirect Taxes – taxes included in the cost good or __________= rent • Pay-as-You-Earn Taxes – paid as you earn income, ex = Federal Withholding taken out at every ________________________ • Type of Taxes • Income Taxes – states and cities impose income taxes patterned after Federal System • Difference is tax _______________ 2. Sales Taxes – taxes added to the price of goods & services at time of _________________ • Percentage of cost of each purchase • Paid when ___________food, gas, etc… • Divided between local and state governments • Property Taxes – tax on value of real property • Gov’t estimates value of land, structure, etc… • Tax is percentage of _____________ • Used by local governments & schools • Can be added to house _____________(called escrow account)

  21. 5.3 Taxes and Government • Excise Taxes – collected on sale of specific goods and ______________. • Ex. Tobacco, gasoline, & alcohol • Included in the price • Estate and Gift Taxes • Estate – when a person dies, property may be inherited by those legally ________to the estate • Only estates of a certain amount and higher are _____________________ • Gift – giver of gifts may have to pay if $12,000 or over as of 2008. • Tax increased at times due to inflation • Business and License Taxes • To operate certain businesses, must have license, permit, or stamp. • Tax is paid for certification, which may have a ___________ (ex. Doctors, etc…) • Customs Duties and Tariffs • taxes to control the flow of products imported into the ________________ • Imposed on some imports • Results in some items from abroad to be sold at _____________ prices than they otherwise would be Assignment - Answer questions on p. 178, #1-4

  22. 5.4 Government Spending • The Power to Influence • Used to influence consumers’ buying _________________ • Taxing means fewer people will buy it • Example – “Sin” taxes on legal goods that are bad for your health. What item is taxed like this? ____________________ • Tax Cuts • Lower taxes = more beneficial choices • In 2008, President Bush led congress to give a tax rebate to encourage consumers to ____________________ • High unemployment areas reduced property taxes for businesses • Can also deduct because donated to ________________________ • Government Spending • Federal gov’t spends or transfers more than $2.65 ____________ each year • State & local spend half as much • Your cost = $___________ per year • Most spending pays for goods and services that benefit all Americans • Public Goods – roads, schools, national defense, etc… • Federal tax dollars used in ____ major areas Vocab Definition & Sentence 25. Public Good -

  23. 5.4 Government Spending • Types of Federal Spending • Social Security, Medicare, and other retirement programs - _____% • National Defense – ______% • Social Programs, such as food stamps and unemployment – _______% • Physical, Human, and community development(education, general science, & space program) – __________% • Interest on National Debt – ______% • Law Enforcement & general government – ____% • Debt Reduction • Late 1990’s thru early 2000’s had tax _______ used to pay down national debt • By 2002, fed. Gov’t spending more

  24. 5.4 Government Spending • State and Local Government Regulations • Enforce many rules and _______ • Example: driver’s license, building permit • Create order and safety in states and local _________________ Assignment P. 183, #1-8 • What State and Local Governments Provide • Building and maintaining ________ • Operating police and fire ________ • Maintaining a criminal justice system • Building and staffing schools • Building and operating state colleges and _____________ • Supporting medical facilities • Constructing and operating sewage treatment ____________ • Operating unemployment compensation ________________

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