Taxes

1. Taxes

2. What are Taxes? • Taxes are fees that support government programs and are required by law to be applied to income, property, and goods. • Taxes are collected at the federal, state, and local levels.

3. Why Pay Taxes? • Taxes pay for a variety of services we use such as road maintenance, public schools, police and fire protection, the armed services, parks, libraries, and retirement income for the elderly.

4. Tax Categories • There are four major categories of taxes. These include: Taxes on earnings (income taxes) Taxes on purchases (sales taxes) Taxes on property (property taxes) Taxes on wealth (estate taxes)

5. Income Tax • Income tax is the tax on wages, salaries, commissions, fees, tips, bonuses and self-employed earnings. • Income tax is also collected on income generated from interest, dividends, and capital gains. • Income taxes can be collected by federal, state, and local governments. • Income tax is a type of progressive tax. This means that the tax rate increases as your income level increases.

6. Sales Tax • This is the tax added onto the price of goods and services. • Tennessee has a state sales tax of 6% on food and food ingredients and 7% on nearly everything else. • Oak Ridge has an additional sales tax of 2.75% • Sales tax is an example of a regressive tax. • This means that the tax has a greater impact upon lower income individuals than higher income individuals.

7. Property Tax • This is the tax that an owner is required to pay on the assessed (appraised) value of their property (land, buildings, and homes). • Registration fees on boats and vehicles are a type of tax on your personal property. • Property taxes are typically the biggest source of revenue for local governments.

8. Estate Tax • This is a tax levied against an individual’s wealth at the time of his or her death. • Estate taxes are complicated. There are fluctuating exemption amounts that seem to change annually. The current exemption amount is the first 5 million in assets. Anything over this amount is taxed at 35%

9. Federal Income Tax • This is collected by the federal government to support its programs. • This is the federal government’s main source of revenue. • Employers withhold this tax from employees as payroll deductions and then send the tax to the Internal Revenue Service (IRS). • Self-employed individuals are responsible for withholding the proper amount of tax from their incomes and submitting this to the IRS. This is usually on a quarterly basis.

10. FICA • FICA stands for the Federal Insurance Contributions Act. • This is a payroll tax on income that funds Social Security and Medicare. • Social Security (OASDI) provides for old-age, survivors, and disability insurance benefits. • Every employee pays a tax of 6.2% of their income for Social Security. • Medicare provides health insurance to retirees and certain disabled persons. • Every employee pays a tax of 1.45% of their income for Medicare. • Employers match their employees contributions for both Social Security and Medicare.

11. The Internal Revenue Service • The Internal Revenue Service is the federal agency that collects federal income taxes and enforces the nation’s tax laws. • The IRS is an agency under the Department of Treasury

12. State Income Tax • Most states also collect an income tax that helps pay for state services. • This is also collected by every employer on behalf of its employees as a payroll deduction and then sent to the state revenue department. • Tennessee is one of nine states that do not have a state income tax.

13. Important Tax Forms • W-4- This form tells your employer the correct amount of tax to withhold from your paycheck • W-2- This form reports an employees annual wages and the am0unt of taxes that have been withheld (January 31) • 1099-INT This form reports the interest that you’ve earned throughout the year • 1099-DIV This form reports the dividends and capital gains that you’ve received throughout the year