1.13.2.G1
The Basics of Taxes
“Take Charge of Your Finances”
Advanced Level
1.13.2.G1
What are taxes?
Taxes –
A sum of money demanded by a
government to support the
government itself as well as
specific facilities or services
Paid by taxpayers –
A person who pays a tax to
national, state, county or
municipal (city/town)
governments
Are you a
taxpayer?
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Community
Community - a group
of people working
together for a
common good
United
States
State
County
City/
town
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
What are benefits of being a part
of these communities?
Roads
Libraries
Public
schools
Military
for
national
security
?
Police and
Recreation
fire
(parks, trails)
departments
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
“You are better off being in a
community than by yourself”
1.13.2.G1
As a community member you
receive many benefits you
could not pay for individually
Taxes are a way that members
of a community provide for
one another
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
How do you benefit from taxes?
1. Make a list of things you use or benefit
from that were funded, at least in part,
by taxes
2. How do these items contribute to your
well-being?
Physical
3. What would you do
Financial
Intellectual
if you didn’t have
these items?
Emotional
Social
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
How do taxpayers pay taxes?
Income
Tax
Excise
Tax
Sales
Tax
Payroll
Tax
Property
Tax
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Income tax
Income tax - tax
on earned and
unearned income
Earned income money earned from
working for pay
Unearned income income received from
sources other than
employment
Example: Wages
and salaries earned
from employment
Example: Interest
earned from a
savings account
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Components of income tax
Federal
income
tax
Income tax
State
income
tax
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Federal Income Tax
Tax is
determined by?
• Earned and
unearned
income
• Higher
income =
More tax
paid
Paid by?
Helps fund?
• Majority of
people living
in the U.S.
• Operations
of federal
government
• Government
programs
• Education
• Defense of
the nation
• Disaster
relief
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
State Income Tax
Tax is
determined by?
• Earned and
unearned
income
• Higher
income =
More tax
paid
Paid by?
Helps fund?
• Those living in
states with a
state income
tax
• Not all states
have a state
income tax
• Varies by
state
• Examples:
• State
highways
• Operations
of state
government
Does your state
have state income
tax?
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Payroll Tax
Payroll tax – A tax on earned income that
supports the Social Security and Medicare
programs (also known as FICA)
Tax is
determined by?
• A set
percentage
of earned
income
• Deducted out
of paycheck
(except for
selfemployed)
Paid by?
• Individuals
who earn
income
from
working for
pay
• Employers
Helps fund?
• Social
Security
program
• Medicare
program
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
What is Social Security?
Purpose
• Income for:
• Retirees
• People with
profound disability
• Children who have
lost a parent
• A person with
children who has
experienced the
death of a spouse
Tax charged
• 6.2% of earned
income (decreased to
4.2% for 2011-12)
• Up to an annual
maximum
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
What is Medicare?
Purpose
• Helps pay for health
care for senior
citizens
Tax charged
• 1.45% of earned
income
• No limit
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Employers also pay Social Security
and Medicare
1.13.2.G1
Match their employees tax contributions
Employee
contribution:
$100
Employer
contribution:
$100
Employer
pays $200 in
payroll taxes
to the
federal
government
Self-employed people pay both the
employee and employer contributions
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 15
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
What is the difference between
income tax and payroll tax?
Income Tax
Paid on both earned and
unearned income
Payroll Tax
Paid on only earned
income
Amount paid depends on
many different factors but
increases as income
increases
Funds many different
operations and programs
of the federal government
A set percentage of
earned income is paid
1.13.2.G1
Funds the Social Security
and Medicare programs
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Property Tax
Property tax - a tax on property, such as land,
buildings (including homes), and motor vehicles
Tax is
determined by?
• Percentage
of property
value
• Amount paid
varies
depending
upon where
you live
Paid by who?
Helps fund?
• Property
owners
o Fee to
license car
is a
property
tax
• Schools
• Expenses of
state and
local
governments
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Sales Tax
Sales tax - a tax on items purchased in retail
stores
Tax is
determined by?
• A percentage
added to the
original price
of an item
• $1.00 item
charged 6%
sales tax =
$1.06
Paid by?
Helps fund?
• Anyone who
purchases an
item charged
with sales tax
• Some states
don’t have
sales tax
• Expenses of
state and
local
governments
Does your state
have sales tax?
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Excise Tax
Excise taxes - taxes charged on consumption
items
Tax is
determined by?
• Purchase of
certain items:
• Gas
• Hotel rooms
• Airline tickets
• Cigarettes
• Alcohol
• Often included
within the price
of these items
Paid by?
Helps fund?
• Anyone who
purchases
certain items
• Varies by
location
• Expenses of
state and
local
governments
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
How are tax rates determined?
Determined by public representatives (city councils,
county commissions, state legislatures, Congress)
Elected by voters
Taxpayers = voters
Work as a voting group to elect representatives
who will represent the majority
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 20
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Tax Deductions
On tax returns, deductions
are expenses the law
allows you to subtract
from your adjusted gross
income to determine
your taxable income. You
must itemize your
deductions (create a list)
– Medical & dental
expenses
– State and local income
taxes
– Property taxes
– Home mortgage interest
– Gifts to charity
– Losses from theft or
property damage
– Moving expenses
Common deductions are:
*Use a standard deductions if you have few deductions
1.13.2.G1
Tax Credits
• The amount subtracted directly from taxes
owed.
• Tax deductions reduce the amount of income
on which the tax is figure while a credit
reduces the tax itself.
• Common tax credits:
– College tuition
– Childcare expenses
– Lower income wage earners
1.13.2.G1
Taxes and Money Management
Taxes play a role in
both earning and
spending
One of the largest
expenses for many
people
Why do you think understanding
taxes is an important part of
money management?
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 23
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
1.13.2.G1
Summary
Without taxes it would
be hard to pay for
many of the benefits of
being a member of a
community
Taxes are charged in
many different forms
The amount of taxes
you pay and what you
pay those taxes on will
vary depending upon
where you live and
your income
Understanding taxes is
an important part of
money management
© Family Economics & Financial Education – May 2012 – The Basics of Taxes – Slide 24
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona