Tax for Teens…

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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
3
What’s the Problem?
Teens
don’t understand
how TAX applies to them
Most
forfeit a refund!!!
Is this you???
4
I’ve Got A Job!
What’s an I-9
and a W-4?
5
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
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
8
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
9
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
10
Can you put Exempt on your W4?

You can put “Exempt” if:
1.
2.
3.
4.
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?


Mind map
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
11
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!
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
13
What if I Make a Mistake?
 Claim
exempt and make more than
$6100?
 More
 If
than likely have to owe taxes!
you don’t claim exempt (0 allowances)
 More
than likely break even or
receive a refund!
W4 ws
14
Where’s All The
Money I Earned?
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
16
The Paycheck Stub
 Miscellaneous
 Gross
Information
Income
 Deductions
 May
 No
 Net
get refund on Fed and State
refund on SS or Medicare
Income
W4 qz/Am I Exempt QZ
18
What’s This,
More Forms?
W-2s and 1099-INTs
19
The W-2
 Must
receive these by January 31st from
your employer
 Summarizes
 How
much you made during the year
 How
much you paid in for taxes
(Earned Income)
 Use
 If
to help fill out tax return
error, see employer to fix
20
W-2 continued
W-2
– will have 3 copies
Your
records
Attach
to state tax return
Attach
to federal tax return
Fill out w wb
22
1099-INT
Receive
Shows
this form from your bank
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
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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
OR if…
3.
Filing Requirement Worksheet for Most Dependents
1.
Enter dependent's earned income plus $350
2.
Minimum amount
3.
$1000
Compare lines 1 and 2. Enter larger amt
(Adjusted Earned Income)
4.
Maximum Amount
5.
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.
$6100.00
26
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.
Enter dependent's earned income plus $350
2.
Minimum amount
$1000
3.
Compare lines 1 and 2. Enter larger amt (Adjusted
Earned Income)
4.
Maximum Amount
5.
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.
$6100.00
27
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.
Enter dependent's earned income plus $350
2.
Minimum amount
$1000
3.
Compare lines 1 and 2. Enter larger amt
(Adjusted Earned Income)
4.
Maximum Amount
5.
6.
$6100.00
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.
Do I have to file return WS
28
Should I File a
Tax Return?
29
Humm, should I file?
Civic
Duty to File
Voluntary
Compliance
Government
Report
their income
Calculate
File
relies on people to:
tax liability correctly
on time
30
To Pay or Not to Pay…
 Why
pay?
 Government
 Ex:
uses money to fund services
School
 Penalty
 Fine
up to $25,000
 Imprisonment
 Or
1-6 Review
up to 1 year
Both!
Do I have to file return QUIZ
31
Forms?
1040EZ
1040
– simplest to file
– most lengthy to file
32
How Do I File
the 1040EZ?
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
 Sum
Gross Income (AGI)
of wages and taxable interest
 Deduction
 Amount
tax payers may subtract from
their AGI before tax is determined (reduction
in income)
 Taxable
 Part
Income
of income you must pay taxes on
 Credit
 Direct
reduction of taxed owed
Fill out 1040EZ wb
35
Sending in the Return
 Photocopy
 Mail
 If
the EZ form for record
in W-2 & 1099 INT with return
owe
 payable
to “United States Treasury”
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
1040 EZ Prob WS
out for scam artists!
37
Other Ways for Government to
Collect Money
 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
 Other
duties (imports)
miscellaneous receipts
Where Does Your Money GO?
Year 2012 – in billions
of dollars
National Defense
% of debt
689 Billion
19%
Social Security
773
22%
Healthcare (Medicare,
732
21%
220
6%
67,249 million
2%
Medicaid, child health ins program)
Interest on National
Debt
Education
Chap 7 review
38
1040 EZ quiz
39
What is the 1040 Form?
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
42
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
43
What is Income?
 Income:
“all income from whatever
source derived”
 Earned
Income
 Unearned
Income
 Miscellaneous
Income
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


De Minimis Fringe Benefits


May be excluded from income if used to pay tuition/course
related fees
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
Standard Deduction: Base amount of income that is not
taxed Income: $6100 (sgl indiv person)
1.
Allowed to deduct this amt from your income before taxes
a.
Itemized Deduction:
2.
a.
b.
c.
d.
e.
f.
g.
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!
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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
 Buying
Expenses
new electric car
 Education
expenses
Payment or Refund?
Payment:
Due
April 15
Refund:
Check
Direct
Deposit
48
Chap 8 Review
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