Tax for Teens…

advertisement

Tax for Teens

1 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.

2

What’s the Problem?

 Teens don’t understand how TAX applies to them  Most forfeit a refund!!!

Is this you???

3

I’ve Got A Job!

What’s an I-9 and a W-4?

4

Form I-9 –

Verification Employment Eligibility     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 5

6

So What Is A W-4?

New employees fill out this form  Tells employers how much federal income tax to withhold from paycheck 7

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 8

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 9

10

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!

11 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!

13

Where’s All The Money I Earned?

14

15

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 16

W4 qz/Am I Exempt QZ

What’s This, More Forms?

W-2s and 1099-INTs

18

19

The W-2

 Must receive these by January 31 st your employer from  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 20

Fill out w wb

22

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

24

Am I Required to File a Tax Return?

http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

25

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.

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.

$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

26

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.

27 $1000 $6100.00

Do I have to file return WS

Should I File a Tax Return?

28

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 29

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!

30 1-6 Review Do I have to file return QUIZ

Forms?

1040EZ – simplest to file

1040 – most lengthy to file

31

How Do I File the 1040EZ?

32

33

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)

34

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” 35

36 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 37  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 38 1040 EZ quiz

What is the 1040 Form ?

39

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 40

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 42

What is Income?

Income: “all income from whatever source derived”  Earned Income  Unearned Income  Miscellaneous Income 43

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

45

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

46

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 47

Payment or Refund?

Payment:

 Due April 15 

Refund:

 Check  Direct Deposit 48 Chap 8 Review

Download