FEDERAL INCOME TAXES
Social Security - FICA
Federal Withholding Tax
(social security/medicare)
W4
W2
PROGRESSIVE TAX SYSTEM
https://www.khanacademy.org/economicsfinance-domain/core-finance/taxestopic/taxes/v/tax-brackets-and-progressivetaxation
Social Security
• A federal insurance program that provides
benefits to retired persons, the disabled, and
the spouses/children of deceased workers
– Includes Medicare which is healthcare for
Americans 65 and older
• http://www.khanacademy.org/humanities/am
erican-civics/v/social-security-intro
FICA
• Federal Insurance Contribution Act (a/k/a Social
Security)
– Social Security (6.2% of gross pay)
– Medicare (1.45% of gross pay)
• Payroll/Income taxes are withheld from employees’ pay (complete
a W4 form)
• Employer pays the amount withheld from employees paycheck
and also pays the same amount to the Federal Government
• See video on how FICA tax is calculated
• http://www.khanacademy.org/humanities/americancivics/v/fica-tax
Federal Withholding Tax
• Form W-4 Employee’s Withholding Allowance
Certificate
– Employer uses to compute amount of tax to
withhold from each paycheck based on number of
allowances (dependents)
– As allowances (dependents) increase, amount of
tax deducted decreases
Federal Withholding Tax
• Form W-2
– Provided to Employee from Employer before
January 31
– Shows total amount of federal taxes paid for the
previous year by the Employee
– Must be attached to federal tax return and used to
calculate federal tax due or refund
INTEREST INCOME
• 1099 INT form
– Sent to recipient before January 31
– Must be attached to Federal Income Tax Return
Any interest earned from bank accounts
(a separate 1099 INT for each account
from each bank)
All interest income is taxable unless
specifically excluded.
1099 INT FORM
W2 vs. W4
W2 Form
• Calculated at the end of the
year
• Reflects all earnings earned
that year
• Reflects all taxes paid that
year based on earnings
W4
• Completed at time of job
acceptance
• Determine how much tax
taken out of each paycheck
• As amount of allowances
increases, tax taken out
decreases
• 0 allowance = $62
• 1 allowance = $51
1040 EZ
• INCOME
–
–
–
–
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Line 1 Wages, salaries, and tips from W2
Line 2 Taxable interest from 1099 INT (if earned from bank accts.)
Line 4 Add together to find ADJUSTED GROSS INCOME
Line 5 Exemption and Standard Deduction($9,750)
LINE 6 = TAXABLE INCOME (amount of income to be taxed)
• PAYMENTS, CREDITS, AND TAX
– Line 7 Federal Income Tax withheld from W2
– Line 9 Total payments and credits
– LINE 10 = TAX (use tax tables to find tax due MUST KNOW TAXABLE INCOME)
• REFUND
– If total payments (line 9) is greater than total tax (line 10) Overpaid = refund
• OWE
– if tax (line 10) is greater than total payments (line 9) Didn’t pay enough = due and
owing
• SIGN HERE
– You signature, date, occupation, and daytime phone number
GIFTS FROM THE IRS
EXEMPTION
Amount tax payers can claim
for themselves and
dependents. Reduces the
income subject to tax
• 2012 = 3800
• 2013 = 3900
STANDARD DEDUCTION
Reduces the income subject to
tax and varies depending on
filing status, age, blindness,
and dependency.
• 2012 = 5950
• 2013 = 6100