S HE ’ S THE W HOLE PACKAGE
U NDERSTANDING TAXES

Taxes


Payments YOU make to the government
to support/pay for government services
Taxes are collected by the IRS

Internal Revenue Service
W HY


DO WE HAVE TAXES ?
To raise revenue (money) to fund new and
ongoing programs

Law enforcement

Transportation/Roads – building and maintenance

Military Defense

Education/School Funding

Health

Postal Services
To regulate business activities

Certain foreign goods are taxed.

Higher taxes on alcohol and tobacco,
VARIOUS
Progressive
Proportional
TAX SYSTEMS ….
• Graduated
• Make more, take more
• Based on ‘ability to pay’
• Example: Federal Income Tax
• Aka: Flat Tax
• Pay same rate, regardless of
income
• State Income Tax
• Name other taxes that are
Flat……
W HAT MUST YOU PAY TAXES ON ?


Income

Profits or earnings

Interest
Who is collecting?


State and Federal
Withhold

Employer deducts from paycheck
W HAT

PAY TAXES
ON ?
Sales Tax (Flat Tax)

Retail: price of goods and services


Collected at the State and City level
Excise Tax


YOU
tax on specific goods such as alcohol/tobacco
Property Tax

Material goods owned

Collected at the local level

Based on the value of property—generally land and buildings

Main source of money for local governments
W-4
W-4
Hired
VS .
W-2
W-2
Personal Info
From
Employer
Allowances
Deadline
Deductions
January 31st
Exempt
Verify Info
Sign & Date
Wages, Taxes
C OMPLETE W HEN H IRED
W-4
F EDERAL TAX F ORM W-2
R ECEIVE
A Control Number
W-2
January
31st
FROM
E MPLOYER
B Employer Identification Number
1 Wages, Tips, Other
Compensation
$3,900.00
2 Federal Income Tax
W/held
$ 196.00
C Employer’s name, address and ZIP
code
3 Social security wages
4 Social security tax w/held
5 Medicare wages and tips
6 Medicare tax w/held
7 Social security tips
8 Allocated tips
D Employee’s social security number
376-19-1411
9 Advance EIC Payment
10 Dependent care benefits
E Employee’s name, address, and ZIP
code
Laura Lou
1411 Stanton Avenue
Lansing, Illinois 46004
11 Nonqualified plans
12 Benefits included in box
1
13 See Instrs. for box 13
14 Other
16 St
Employer’s
state ID
17 State
wages,
tips, etc.
15 Statutory
Deceased
Deferred
employee
compensation
18 State
Inc tax
Illinois
$ 142
19
Localit
y name
Pension
Legal
plan
rep.
20 Local
wag
es,
tips
21 Local inc. tax
DO
You
make
$305 a
week in
salary for
52
weeks.




THE
M ATH …..
You pay the following taxes in a year

$1770 federal income tax

$482 in state income tax

$218 in sales tax

$373 in property tax

$990 in FICA (social security tax)

$132 A variety of other taxes
What is your yearly income?
What is the total amount of taxes paid during the
year?
How many weeks must you work just to pay taxes?
A NSWERS

Yearly income
305*52=$15,860

Total Taxes = $3,965

3965 / 305 = 13 weeks
K EY

Voluntary compliance


TERMS TO KNOW …
It is left up to the taxpayer to keep
the necessary records, file a return
on time pay required taxes etc.
Pay-As-You-Go methods

Taxpayer must pay the tax as
income is earned or received
during the year.
 Gross Pay vs. Net Pay
R EDUCE YOUR TAX L IABILITY

An exemption is a fixed amount of
money that is excused from taxes.

A dependent is someone you support
financially

Son, daughter, grandchild, niece etc.
– under 19, and 24 if a student,
provided ½ of their support, lived w/
you for at least ½ of the year (see
page 19 of the manual).
R EDUCE Y OUR TAX L IABILITY

A deduction is an expense that taxpayers are
allowed to subtract from their income when
figuring the amount of tax they must pay, such as
certain medical or business costs, student loan
interest.

Standard Deductions


single: $6,200

married:$11,600, or

head of household: $8,500 or
Itemized Deductions.
Look at the schedule A
Understanding Taxes
The three levels of government are:
federal (the whole country),
state (the 50 states), and
local (counties, cities, and towns).
Understanding Taxes
Tax forms can be completed on the IRS
Web site and then submitted to the IRS.
Taxes paid to the IRS go into the U.S.
Treasury.
Income Taxes
Income is calculated as a percentage of
the taxable income you earn.
Taxable income is your income after you
subtract certain permitted amounts.
Income Taxes
Currently, the federal income tax ranges
from 15 to 39.6 percent.
The higher your income, the higher the
rate of income tax you must pay.
Income Taxes
In most states, people also pay state
income tax.
Many cities also have income taxes.
Income Taxes
If you are self-employed, you are
responsible for withholding your own
taxes.
Income Taxes
The IRS requires self-employed people
to pay income taxes quarterly (four times
a year) based on the income they
estimate they will make that year.
Social Security Taxes
Workers pay Social Security taxes so that they can
receive benefits when they retire.
• Social Security taxes are figured as a percentage of the
money you earn.
•Your paycheck stub shows the money withheld in a box
labeled “FICA.”
•FICA stands for Federal Insurance Contribution Act, or
“Social Security.”
Graphic Organizer
23.1
Taxes
FEDERAL
STATE
LOCAL
income
tax
income
tax*
income
tax*
sales
tax*
sales
tax*
Social
Security
tax
*Not all jurisdictions levy these taxes.
Chapter 23 • Taxes and Social Security
property
tax
Succeeding in the World of Work
It’s Your Responsibility
We all have to split the bill for the
services the government provides.
Since we all share the benefits, we
should all contribute our fair share of
taxes.
It’s Your Responsibility
Some people disagree on what’s fair.
Some people think that high-income
people should pay a larger share of their
income than low- or middle-income
people.
It’s Your Responsibility
You can influence how federal, state,
and local governments spend tax
money.
You can also influence tax laws.
How? By voting.
It’s Your Responsibility
It’s your responsibility as a citizen to vote
for officials who represent your beliefs.
A Good Tax System
The features of a good tax system are:
The system should be fair.
Tax laws should be clear and simple.
Taxes should be collected at a
convenient time.
The system should be stable.
The system should be flexible.
Understanding Federal
Income Tax Returns
An income tax return is a form that
shows how much income a person
received from working and other sources
and how much tax that person must pay.
Understanding Federal
Income Tax Returns
If your employer withheld more money
from your paychecks than you owe,
you’ll get a tax refund.
If your employer didn’t withhold enough,
you will have to pay the difference.
How Do You File a Return?
Generally, if you’re single and earn at
least $6,400 in a calendar year, you
must file an income tax return.
How Do You File a Return?
To prepare a return, you’ll need Form W2, which your employer will send to you.
A W-2 shows how much money you
earned and how much was withheld by
your employer for taxes.
How Do You File a Return?
The three basic federal income tax
forms are:
1040EZ
1040A
1040
How Do You File a Return?
To relieve themselves of paying
excessive taxes, many people try to
reduce the amount of income they
report.
Putting money in a 401(k), or donating to
charity, can legally reduce your taxes.
How Do You File a Return?
Resorting to illegal methods to lessen
taxable income is called fraud or tax
evasion.
The most common form of tax evasion is
not declaring income.
How Do You File a Return?
To deter illegal tax reporting, the IRS
performs random audits.
During an audit, the IRS requires a
business or individual to prove that the
information on a tax return is accurate.
How Do You File a Return?
You can file Form 1040EZ if:
You’re single and earned less than
$50,000 during the year.
You had no other income.
You are not claiming an exemption for
being over 65 or for being blind.
You have no dependents.
How Do You File a Return?
The steps to completing the 1040EZ
form include:
Add up your total income from work
and other sources.
Subtract your standard deduction and
personal exemption.
continued
How Do You File a Return?
Use the tax table to find out how much
tax is due on your income.
By comparing this amount with the
taxes withheld on your Form W-2,
you’ll see whether you owe taxes or
will get a refund.
How Do You File a Return?
The IRS provides free publications that
help you fill out your tax return.
You can also get help over the phone,
on the Internet, and from books at the
library.
How Do You File a Return?
You can pay a tax-preparation service or
an accountant to prepare your tax forms
for you.
SECTION 23.1 REVIEW
Key Concept Checkpoint
Comprehension
1. List five characteristics of a good tax
system. Why are these features
desirable?
continued
SECTION 23.1 REVIEW
Key Concept Checkpoint
Comprehension
2. How does the money you earn and
the amount withheld determine
whether you owe income tax?
continued
SECTION 23.1 REVIEW
Key Concept Checkpoint
Comprehension
3. How will understanding such terms as
exemption, dependent, and deduction
help you complete a tax return?
continued
SECTION 23.1 REVIEW
Key Concept Checkpoint
Critical Thinking
4. Why do you think the taxation
process involves so much
paperwork?
SECTION OPENER / CLOSER
INSERT BOOK COVER ART
End of Section 23.1
All About Taxes