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Understanding Income Taxes: How Much Will You Actually Take Home?

Learn how to calculate your net pay and understand the deductions involved in your income, including payroll taxes, federal and state income taxes. Discover how to fill out the W-4 form and adjust your allowances to optimize your tax withholding.

stephanieoliver
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Understanding Income Taxes: How Much Will You Actually Take Home?

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  1. What do these people have in common? Martha Stewart Wesley Snipes Willie Nelson Nicholas Cage Marc Anthony Darrly Strawberry “Survivor” Richard Hatch Heidi Fleiss

  2. Lets see what happens to our income • $60,000/year • $5,000/month • $2,500/pay period (every other week) • How much will we actually take home??

  3. Step One: The Payroll Tax

  4. Payroll Taxes $4500/year

  5. The Payroll Tax: Purpose

  6. Step 2: Federal Income Tax

  7. Progressive Tax

  8. Federal Taxes • $10,928.50/year

  9. Federal income taxes: Purpose 1. national defense, veterans, and foreign affairs 2. social programs 3. law enforcement 4. interest on the national debt

  10. Step 3: State Taxes! Progressive Tax

  11. State Taxes • $1417.50/year

  12. How much we actually make? Gross Pay - Social Security taxes - Medicare taxes - Federal Income tax withheld - State income tax - Misc: Retirement, Healthcare, dues, et cetera ________________________________ Net Pay

  13. How much do we actually make?? • $60,000/year GROSS • $43,153.93/year is actually NET That does not account for other deductions…That is only taxes!! • Insurance Deductions:health, dental and life insurance. • Retirement Plan Contributions

  14. Stock Market Game

  15. If taxes are automatically taken out of your paycheck and your rate is based on a tax table, how is it possible to under or over pay??

  16. Fill out your W-4s • Was it easy? • What is the purpose of this form? • determines how much federal income tax to withhold • Is that weird? • You can manipulate the amount you want withheld since more than your tax bracket impacts how much you pay in taxes

  17. The W4 • Filling out the W-4 Depends on 1. the employee's marital status, children, dependents 2. any additional amount the employee wants to withhold 3. any exemptions from withholding that the employee claims. • More allowances = less taxes are taken out of paycheck; • Less allowances = more money taken out • Why???? • http://apps.irs.gov/app/withholdingcalculator/ • IRS withholding calculator

  18. Lets fill it out again… • Single, no children, no one else can claim you

  19. Altering your taxes • Why would you want to increase your allowances? • Overpaying bcof credits / house, children, childcare, tuition, medical, et cetera • Why would you want to decrease your allowances? • Underpaying bc of Capital gains, interest from investments, other income, married, et cetera • Is there a “PERFECT” way to fill out this form?

  20. What is next???

  21. http://www.irs.gov/app/understandingTaxes/hows/mod01/sim_mod01_01.jsphttp://www.irs.gov/app/understandingTaxes/hows/mod01/sim_mod01_01.jsp

  22. What do you need to complete your taxes?

  23. Tax Time!!!! • Tabulate your gross income • W2 FORMS • Interest earnings • Bonuses/ tips • Dividends • Any other income!

  24. What is an exemption? A way to “adjusting/decrease” your Gross Income • Charity • Student loan interest • Moving expenses-work When you are done reducing your gross income, you have an: • Adjusted gross income

  25. Full List Deductions • IRA Deduction • Archer MSA Deduction • Health Savings Account Deduction (see the Instructions for Form 8889) • Student Loan Interest Deduction • Moving Expenses • Self-Employed Health Insurance Deduction • Self-Employed SEP, SIMPLE, and Qualified Plans • Penalty for early withdrawal of Savings • Scholarship and Fellowship Grants excluded from income • Domestic Production Activities Deduction

  26. What form do I use? • 1040 EZ: standard deduction • 1/3: itemize: 1040 (schedule A)

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