Tax for Teens…
Tax for
Teens
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Vocab/Definitions WS
Did You Know?
Average annual income for teens: $3,095.00
40% of teens currently save regularly
Nearly 1/3 all students work 40+ hours per week in summer
¼ work 35+ hours per week during the school year
Average teen saves $1000 of summer wages
FYI : Amish pay tax on real estate and personal property and income tax on any earnings. They do not pay school tax, social security or Medicare tax.
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What’s the Problem?
Teens don’t understand how TAX applies to them
Most forfeit a refund!!!
Is this you???
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I’ve Got A Job!
What’s an I-9 and a W-4?
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Form I-9 –
Employment Eligibility
Verification
Proves you aren’t an illegal alien
Penalty if not one on file for each employee
Keep 3 years after employee is gone
Acceptable documents used to prove citizenship:
Passport
Voter’s registration
School or military ID
Driver’s license
Social security card
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So What Is A W-4?
New employees fill out this form
Tells employers how much federal income tax to withhold from paycheck
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Filling Out the W-4 Correctly
If don’t fill out correctly:
Owe money when taxes are due April 15
Could be taking out too much tax from paycheck
Lose potential interest
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A Few Key Terms You
Need To Know
WITHHOLDING:
Represents money that an employer deducts from paycheck to pay all or part of employee’s taxes
However, depending how much make for the year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying
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Can you put Exempt on your W4?
1.
2.
3.
4.
You can put “Exempt” if:
Weren’t required to pay federal income tax last year
Don’t expect to this year either (made less than
$6100 { std deduction - base amount of income that is not taxed
})
If under 19 or a full-time student (or until 24 yr/full time)
CAN parent(s) claim you as a dependent?
DEPENDENT: A person who relies on another taxpayer for at least half of his or her support (food, shelter, clothing, education, etc.)
If divorced
Custodial parent (has child 1 more day than other)
One makes more money
Mind map
Examples:
If you live with parents and under 19, you can be claimed as a dependent regardless of how much you make.
While your parents may not choose to claim you, test is whether they CAN.
If they can claim you and you are under 19, and expect to make under $6100 in the calendar year, you will likely NOT have to pay federal income tax.
Note: If you are at least 19 but under 24, parents can still claim you as a dependent as long as you are a FULL-TIME Student!
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In-Class Am I Exempt WS Am I Exempt WS
12 See pg 347-48 acct text
I don’t qualify for Exempt status – now what?
Need to fill out the personal allowances worksheet on the W-4 form!
The more exemptions (allowances) you claim, the _____ tax withheld from paycheck
Claim “____” will result in the largest amount of tax to be withheld
TAX TABLE
Fill out W4 with workbook
W4 ws
What if I Make a Mistake?
Claim exempt and make more than
$6100?
More than likely have to owe taxes!
If you don’t claim exempt (0 allowances)
More than likely break even or receive a refund!
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Where’s All The
Money I Earned?
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Where’s All The Money I Earned?
Payroll Taxes
Federal and State
Collected from employers and employees to provide retirement benefits (social security, Medicare)
This amount is paid regardless of income earned
Will NOT get back until retirement
The Paycheck Stub
Miscellaneous Information
Gross Income
Deductions
May get refund on Fed and State
No refund on SS or Medicare
Net Income
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W4 qz/Am I Exempt QZ
What’s This,
More Forms?
W-2s and 1099-INTs
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The W-2
Must receive these by January 31 st from your employer
Summarizes
How much you made during the year
(Earned Income)
How much you paid in for taxes
Use to help fill out tax return
If error, see employer to fix
W-2 continued
W-2 – will have 3 copies
Your records
Attach to state tax return
Attach to federal tax return
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Fill out w wb
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1099-INT
Receive this form from your bank
Shows interest earned for year
Remember: Interest is considered
“unearned income” and may have to pay tax on it!
Fill out w wb
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Am I Required to
File a Tax
Return?
http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F
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Am I Required to File a
Tax Return
(as a dependent)?
Due April 15!
Required?
Depends…
*Your income for the year
*If parents can claim you,
you must file if:
1.Your unearned income was over
$1000
2.Your earned income was over $6100
3.
OR if…
Filing Requirement Worksheet for Most Dependents
1.
2.
3.
4.
5.
Enter dependent's earned income plus $350
Minimum amount
Compare lines 1 and 2. Enter larger amt
(Adjusted Earned Income)
Maximum Amount
Compare lines 3 and 4. Enter the smaller amount
6.
Enter the dependent’s gross total income. If line
6 is more than line 5, the dependent MUST
FILE an income tax return.
$1000
$6100.00
Am I Required to File a Tax Return?
John Garcia,
18, earned
$4200 working at the local library and was paid $210 in interest from his bank savings account.
Filing Requirement Worksheet for Most Dependents
1.
2.
3.
4.
5.
Enter dependent's earned income plus $350
Minimum amount
Compare lines 1 and 2. Enter larger amt (Adjusted
Earned Income)
Maximum Amount
Compare lines 3 and 4. Enter the smaller amount
6.
Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return.
$1000
$6100.00
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http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F
Am I Required to File a Tax Return?
Jill Williams, 18, had two jobs during the past year. She worked as a waitress at La
Fogata, where she earned $6800 and as a summer counselor, where she earned $2400.
Jill also made $375 in interest.
Filing Requirement Worksheet for Most Dependents
1.
2.
3.
4.
5.
6.
Enter dependent's earned income plus $350
Minimum amount
Compare lines 1 and 2. Enter larger amt
(Adjusted Earned Income)
Maximum Amount
Compare lines 3 and 4. Enter the smaller amount
Enter the dependent’s gross total income. If line
6 is more than line 5, the dependent MUST FILE an income tax return.
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$1000
$6100.00
Do I have to file return WS
Should I File a
Tax Return?
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Humm, should I file?
Civic Duty to File
Voluntary Compliance
Government relies on people to:
Report their income
Calculate tax liability correctly
File on time
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To Pay or Not to Pay…
Why pay?
Government uses money to fund services
Ex: School
Penalty
Fine up to $25,000
Imprisonment up to 1 year
Or Both!
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1-6 Review Do I have to file return QUIZ
Forms?
1040EZ – simplest to file
1040 – most lengthy to file
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How Do I File the 1040EZ?
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How Do I File the 1040EZ?
Must meet requirements to use EZ:
Single
Claim no dependents
Taxable income < $100,000
No income other than wages, salaries, and tips (shown on W-2)
Up to $1500 taxable interest
(shown on 1099INT)
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Filling out the 1040EZ
Terminology:
Adjusted Gross Income (AGI)
Sum of wages and taxable interest
Deduction
Amount tax payers may subtract from their AGI before tax is determined
(reduction in income)
Taxable Income
Part of income you must pay taxes on
Credit
Direct reduction of taxed owed
Fill out 1040EZ wb
Sending in the Return
Photocopy the EZ form for record
Mail in W-2 & 1099 INT with return
If owe
payable to “United States Treasury”
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Don’t Want to Pay? What could you have done differently?
If you don’t choose to pay, IRS will add
5% to what you owe for each month you don’t pay!
W-2
Claimed “0” rather than exempt so take taxes out
Watch out for scam artists!
1040 EZ Prob WS
Other Ways for Government to
Collect Money
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Income tax not only source
Social Insurance taxes and contributions
(retirement and unemployment)
Excise tax (tax on gas, cigarettes, and alcohol)
Estate and gift tax
Customs duties (imports)
Other miscellaneous receipts
Where Does Your Money GO?
Year 2012 – in billions of dollars
% of debt
National Defense 689 Billion 19%
773 22% Social Security
Healthcare
(Medicare,
Medicaid, child health ins program)
Interest on National
Debt
Education
732
220
67,249 million
21%
6%
2%
Chap 7 review
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1040 EZ quiz
What is the
1040 Form
?
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File 1040 Form?
File this form if:
Received dividends or capital gains from an investment (1099 DIV)
Received tips of $20 or more in any month that you didn’t report
Box 8 of W-2 shows tips allocated
Earned income from your own business
Won money in lottery or raffle
Received non-employee compensation
Social Security pension
Farm
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Filing Status and Exemptions
Filing status affects amount tax paid
Exemptions
$3800 - each exemption may be subtracted from adjusted gross income
Exemptions help to reduce taxable income
But you won’t qualify bc parents can claim you
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What is Income?
Income: “all income from whatever source derived”
Earned Income
Unearned Income
Miscellaneous Income
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Use to report
“other income”
Ex:
• Commissions
• Fringe Benefits
• Laker tickets
• Clothing
• Income from outside business
• Web page
• Cash prizes won
• Raffle
• Lottery
• Capital Gains
• Interest/Dividends
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Exclusions From Income
Certain economic benefits don’t have to count as income =
exclusions from income
Gifts
Must see Dominant Reason was out of affection, respect, admiration, charity
Ex: transfer of property
Inheritances
Scholarships
May be excluded from income if used to pay tuition/course related fees
De Minimis Fringe Benefits
Ex: Store’s photocopier, company coffee, telephone
Ebay winnings
(pg 41)
Do pg 42 WB
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Standard & Itemized Deductions
(both help to reduce taxable income) YOU DECIDE
1.
a.
Standard Deduction: Base amount of income that is not taxed Income: $6100 (sgl indiv person)
Allowed to deduct this amt from your income before taxes
2.
a.
b.
c.
d.
e.
f.
g.
Itemized Deduction :
State and Local Taxes
Gifts to Charity
Job Expenses – mileage?
Travel
Uniforms
Education – if maintain or improve skills and/or meet requirements of employer
Other: tools, supplies for job, professional journals, protective clothing
You will take the larger amount of the two!
Credit
A direct reduction of tax owed
Credit actually deducted from the amount of tax you owe
(dollar for dollar)
Child Care Expenses
Elderly or Disabled
Adoption Expenses
Buying new electric car
Education expenses
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Payment or Refund?
Payment:
Due April 15
Refund:
Check
Direct Deposit
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Chap 8 Review
