To make a living, you could choose any number of career paths. Say you decide to become a
computer programmer. Your job pays a salary of $67,500 a year and requires $9286 to be paid
in taxes.
Where does the $9286 figure come from? Is it a fixed number all U.S. workers must pay in
taxes, regardless of career choice? Use the images below to help you answer this question.
The tax value appears to be different for each of the three careers. So can you assume that all
computer programmers must pay $9286? Or that anyone who makes a salary of $67,500 must
pay this amount? Not exactly. This tax value takes a few more personal items into account.
Every year, as long as you are earning money, you will have to pay an individual income tax to
the government. This helps to pay for public services such as transportation and education, as
well as those provided by Social Security and Medicare, which you learned about earlier.
The amount of individual income tax you must pay for these services will depend on several
factors, including how much money you earn, whether you're married, and whether you have
dependents.
You just saw that income tax is not based on salary alone. It's based on all taxable income.
What exactly is taxable income? It might sound complex, but the cartoon below can sum it up
visually in less than 60 seconds. Can you put this visual into words?
The only certain things in life are
death and taxes.
—Benjamin Franklin
As shown in the cartoon on the previous page, there may be parts of your income or certain
expenses on which you don't have to pay taxes. Do some of your expenses involve paying for
school? Raising children? Donating to your community? You might not have to pay taxes on all
of that money.
Tax forms explain some of the more obvious tax-free expenses. But other expenses will require
you to do some research to see whether they qualify.
In the end, though, it's up to you or an accountant to recognize which aspects of your income or
expenses might affect your individual income tax.
How much you owe in taxes each year is calculated based on your total taxable income. This is
equal to your gross income (total income) minus any adjustments, deductions, and exemptions
you might have.
As you saw earlier, people who earn more money pay more in taxes. This is because the United
States has what is called a progressive tax system.
Another feature of the federal tax system is called pay-as-you-go. This is the requirement that
your employer deduct money from each paycheck and send it to the Treasury. This is one of the
required deductions you learned about earlier.
Paying taxes is a mandatory duty. The punishment for failing to pay can range from a fine to a
prison sentence.
Imagine you just got a new job. One of the first things you'll do when you start is fill out a W-4
form. This tells your employer how much money should be taken from each paycheck for federal
taxes as part of the required deductions.
The IRS suggests that you complete a new W-4 form each year, just in case something
changes.
When you first start working for your employer, you fill out a W-4 form. On the
W-4, you list the number of your dependents and other exemptions, and your employer uses
that information to determine how much to deduct from your paycheck for required taxes.
Every two weeks (or, in some cases, every month) you receive a paycheck with a tear-off stub.
The pay stub explains what your deductions are and why you receive a particular net amount in
your paycheck.
Then, at the end of the year, you receive a W-2 form. The W-2 is an official document from your
employer that tells you how much you made in gross and net income that year. It also includes
any deductions that were made from your regular paychecks. Your W-2 will help you figure out
whether you need to pay more money in taxes at the end of the year — or whether the
government owes you a refund.
Every pay period, you'll receive a paycheck. You'll also receive a pay stub, which includes
information about what has been deducted from your gross pay to cover taxes and optional
deductions. How do you make sense of all that information? Take a look below.
Every year following the first year of employment, your employer will send you a W-2 form by
February 28th.
This form has a summary of your earned wages, as well as the required deductions and
optional deductions taken from your pay. This way you know how much you have already paid
in taxes when you fill out your individual income tax forms
In the United States, income levels are sorted into different tax brackets. Your tax bracket
determines what part of your income goes toward taxes. What tax bracket you fall into depends
on your annual income and your filing status.
There are five different filing statuses based on your marital status and whether or not you have
dependents. The table below summarizes the four typically found in tax tables.
Once you have read this, write your filing status on your study sheet and answer the questions
below.
A dependent is a person who relies on another person for financial support. Typically,
dependents are children or elderly parents in the care of a son or a daughter. When you file
your taxes, each dependent reduces the amount of taxable income .
Each dependent results in an exemption, which is an reduction allowed by the IRS before taxes
are calculated. In 2010, you got a $3650 exemption for each dependent you claimed. This
means that $3650 of your income was not taxed. In addition, you could also claim a $3650
exemption for yourself and one for your spouse.
How can you keep more of your paycheck?
The answer is: deductions!
Just as exemptions reduce your taxable income, deductions can also be taken using one of two
methods. For itemized deductions, you can list certain expenses — such as work expenses,
medical expenses, and charitable donations — to reduce your taxable income.
What if you do not have a lot of qualifying expenses? You can still reduce your taxes by taking
the standard deduction.
Now that you can determine your standardized deduction, you can figure out what your taxable
income is using the formula:
taxable income = gross income – (adjustments + deductions + exemptions)
In all the calculations that follow, you may assume the adjustments are $0 and that the tax year
is 2009.
Once you have determined your total taxable income from your gross income, you can calculate
how much you owe in taxes.
To do this, use the tax table. The tax table is organized by tax bracket and filing status. To find
what you owe in taxes, find the column containing your filing status and move down until you
find your tax bracket.
Below is a sample tax table for the salary range $32,000 to $32,999
.