Ch.5 Taxes: How Much of Your
Income Will You Keep?
5.1 Taxes and Your Paycheck
5.2 File a Tax Return
5.3 Taxes and Government
5.4 Government and Spending
1
5.1 Taxes and Your Paycheck
5.1 Vocabulary Words
Directions: Write each word with the full definition. Then write a sentence using the vocabulary word.
1.
Payroll tax –
2.
Income tax –
3.
Federal Insurance Contributions Act (FICA) –
4.
Withholding -
2
5.1 Taxes and Your Paycheck
5.1 Vocabulary Words
Directions: Write each word with the full definition. Then write a sentence using the vocabulary word.
1.
Payroll tax –
2.
Income tax –
3.
Federal Insurance Contributions Act (FICA) –
4.
Withholding -
3
5.1 Taxes and Your Paycheck
Payroll Taxes
Are placed on income earned by ________
 Amount based on individual’s total earnings
& tax laws that apply to type of income
 Paid to government by individual employees
and their ________________________
 Income taxes – pay on most types of
income you receive.

 Not a fixed ________________________
 Share varies, depending on each taxpayers
financial & family situation
 In 2008, ranged from 10 – 30%

FICA – law that requires workers and their
employers to contribute to Social Security
and ____________________________
 Withholding
 Income withheld from paycheck goes to
prepay federal income tax & social
insurance _____________________
 Makes sure government collects taxes at
steady rate & more likely people will pay
taxes
 Your Paycheck Stub
 Shows gross income & withholding
 Gross Income –
 Net Income –
 Shows what else was withheld
4
5.1 Taxes and Your Paycheck


worksheet provided with W-4, tells how to calculate #
of allowances to ___________________________

More __________________ claimed, smaller
amount withheld will be
 Required by __________________

Will not change amount of taxes owed
 Gives info needed to determine correct

If do not pay enough in taxes, then owe at end of year
 Form W-4
 Fill out when you are hired for a job

amount to withhold from check
Adjusting Your Allowance
 W-4 does not consider special situations
 Your Responsibility for Proper
 Withholding Too Much
Withholding
 You’re responsible for consequences if
form is ______________________
 If amount paid to government not
enough, then you owe at end of year
Wkst. – fill in
W-4 form
5
Allowances

Students often have too much withheld because
work more during summer

Summer you may work 40 hrs so percentage
based on that for whole ________________
 Withholding Too Little

Allowance calculated may result in too little
_________________________________

Can avoid paying large bill by:
1.
Sending extra tax payments to the IRS
2.
Claiming fewer allowances
3.
Specifying extra amount to be withheld
from each paycheck on your ___________
5.1 Taxes and Your Paycheck
 Over withholding as a Way to Save
 Some choose to “over withhold” as a way to _________________
 Claiming too few allowances means a refund at end of year
 Not good from financial point of _______________________
 Because if you put that money in a savings account, you make money or interest off of it.
 Reduce withholding to be more in line with what owed by claiming
additional _____________________
 Goal – make withholdings almost exactly equal to what you ____________
 Home Work – p. 162, Questions #1 - 7
6
5.2 File a Tax Return
10. Tax Return –
11. Form W-2 –
12. Form 1099-INT –
13. Form 1040EZ
14. Dependent
7
5.2 File a Tax Return
8
15.
Deduction –
16.
Social Security Number –
17.
Taxable Income -
5.2 File a Tax Return


Your Income Tax Return

If you have income, you must file a tax ________

Income more than just wages

All income you receive is ________________

A tax return is a set of forms to calculate
obligations

Not required to fill out if earned less than
minimum ______________________

Shows whether you owe the government or they
owe you
Sources of Information for Your Tax Return


9
Form W-2

Must have from employer by January 31st

Will get for each job you hold for the fiscal
_______________

When filing, you get a copy and the IRS gets a
copy

If you do not file, IRS will let you ________
Form 1099-INT

Will receive from bank stating what interest
you earned from _________ __________

This is all a younger person usually needs
 Income tax forms
 The EZ way – must meet __________
1.
You are single or married filing jointly
with your spouse
2.
No __________________
3.
You and spouse under ________
4.
Neither you or spouse are blind
5.
Have taxable income of less than
$_____________________
6.
Earned no more than $1,500 in
interest
7.
You had no income other than wages,
interest, tips, scholarships, or
unemployment ___________

Form 1040A & 1040

May use if :
1.
Older
2.
Have children
3.
Invest in stock __________

Allows you to list or itemize
deductions to reduce amount you owe

http://www.ehow.com/video_22597
967_file-1040ez-dependentsworksheet.html
5.2 File a Tax Return
 How to Complete a 1040EZ
 Identify Yourself
 Need name, address, and social
___________ _____________
 Below ID number, is checkbox
presidential elections – check box to
contribute to ______________
 Income
 Total Wages, Salaries, & Tips
 Income received for over one
_______________
 Calculate total earnings from all
W-2 forms
10
 Taxable Interest Income
 Fill in amount of interest reported on your
___________________
 Unemployment Compensation
 Fill in amount of any unemployment
compensation received
 Adjusted Gross Income
 Add income from lines 1, 2, & 3 together =
adjusted ___________ _____________
 Record on line 4
 Determine Your Deduction
 If parents claim you as dependent, you cannot
claim
 If no one else claims you, enter the amount
____________________.
 Forms allow tax payers to deduct those they
support
 Reduces amount of income on which
they must pay ________________
 Standard deduction – amount that all tax
payers may subtract from adjusted gross
income
 Amount varies according to filing status
 The form will tell you what to do depending
on filing ______________________
5.2 File a Tax Return
 Your Taxable Income
 Line 5 subtracted from adjusted gross
income = __________ __________
 This is the income figure used to
determine your taxes

11
Payments and Tax
 Federal Income Tax Withheld
 The next step on form that goes on line
7
 Total withholding for year is in box 2
on your ____________ for each job
 If had more than one job, need to add
up all of box 2’s
 Earned Income Credit
 Use if have low _______________
 Use line 8a
 Treated as if an additional tax
_______________________
www.youtube.com
 Total Payments
 Line 9 – will add withholdings
and earned income ________
 Result is total amount of taxes
already paid
 Tax - http://www.irs.gov/pub/irspdf/i1040tt.pdf
 1040EZ contains table that tell
you your total tax for year
 Taxable income recorded on
line _____________
 On table, locate two numbers
within your _____________
income falls.
 Then find, in the next column,
what applies to you
of a
5.2 File a Tax Return
 Math of Money, p. 169
Use the tax table on p. 168. Your W-2
form reports that you made $35,539.
Your W-2 form also reports that $4,053
was withheld from your wages for
federal income tax. You receive a 1099INT from your bank that tells you your
interest income was $281. You are
single and are not claimed by any other
person as a dependent.
1.
How much is your adjusted gross income?
_______ + ________ = ______
2.
How much is your taxable income
________ - ________ = ______
*Use this answer to do answer # 3
3.
What is your total tax for the year
*use the tax table on p. 168
4.
What is the amount of your payment or
refund?
_______ - ________ = ______
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5.2 File a Tax Return
 Refund
 Deposit Your Refund Electronically
 have option of depositing
electronically into checking or
savings ________________
 You need the routing number, banks
electronic address for fund transfers,
to have directly deposited
 Also need savings/checking
_________________
 Amount You Owe
 If withholding is less than tax
calculated for line 10, you would
record number on line 12. This is
amount you _________________
13
 Sign Here
 Must sign name with ___________
hand writing
 Must write in date
 When signing, saying that you are who
you say you are
 Check for Accuracy and File Your
Return
 If a mistake is made, then you may have
to pay a penalty or receive a lower
____________________________
 If owe money, write a check to IRS or
give credit card number
 If paying with credit card, may be
charged additional fee of __________%
 The due date is April _______ unless
falls on Sunday or a holiday
5.2 File a Tax Return
 Self-Employment Tax
 People who work for themselves
pay ___________ _______
 Paying on a Quarterly basis
 Must earn more than $400 in a year
 Schedule C
 Required to attach schedule C


 Must use form ______________
 Must pay every 3 months
 Up to you to remember to pay


14
because of limited _____________
Must keep detailed records of
business expenses
The amount determined as net of
loss on form written on line 12 of
_____________________
Self-employed pays same taxes as
__________________________
Difference is self-employed have to
withhold their taxes and pay
________________________
5.2 File a Tax Return
 Electronic Filing
 May file _________________
 More than 60% filed online in




2006
Takes 3 weeks or less to get
refund ______________
Can purchase software to do it
on own(ex. Quicken, Tax Pro)
There are also ______ ______
Can get tax refund loan
 They give you less than
____________ from refund, and
take whatever you owe when comes
in
15
Assignment:
Do questions 1 – 6 on page
172
5.3 Taxes and Government
16
18.
Sales Tax -
19.
Property Tax –
20.
Excise Tax –
21.
Estate Tax –
22.
Gift Tax
5.3 Taxes and Government
23. Business or License Tax –
24. Customs Duty or Tariff -
17
5.3 Taxes and Government
 Sources of Government Revenue
Income Taxes
Soc.Sec.&Me
dicare
Corporate
Others
18
• Social Security and Medicare
•Contributions to Social Security
•FICA regulations – wages taxed at _________
•Collected on gross income up to max level &
adjusted for inflation each year
•2008 – maximum income taxable was
$____________________
•Contributions to Medicare
•1.45% taken
• total percentage for both is __________%
• Employers Contribution
•Match ___________________
• for each dollar up to max of 15.3 cents –
employee=7.65, employer=7.65
•_____________must pay all of 15.3 cents
• half payments can be subtracted from adjusted
gross income to reduce income taxes
5.3 Taxes and Government
 Classifying Taxes


 Three different ways to group
taxes
1. _________________




Taxes and Income
2.

19
Every taxpayer should be treated
equally
Benefit Principle – those who use
gov’t services should pay for it(ex.
Toll road)
Ability-to-pay principle – larger
income pays larger share
Ex. Fed. Gov’t – range ___ ____% based on amount made
Progressive taxes

Take larger share of larger
incomes, ex. Salary went from
________ to ___________





Regressive Taxes
Take smaller share of higher
incomes than ___________
Ex. Louisa make 16,000 per
year, Ray makes 45,000 per
year. Both buy cars for
10,000 at .08% sales tax. This
takes 5% of Louisa’s income
vs. 1.8% of Rays
Proportional Taxes
take same share of all ______
No perfect examples of this in
our country
The only difference between the
three is the ____________ of
different incomes that it takes
5.3 Taxes and Government
 How Taxes are Collected
Direct Taxes – income and property
paid directly to ______________
2. Indirect Taxes – taxes included in the
cost good or __________ = rent
3. Pay-as-You-Earn Taxes – paid as you
earn income, ex = Federal
Withholding taken out at every
________________________
2.
Sales Taxes – taxes added to the
price of goods & services at
time of _________________
1.

Type of Taxes
1.
Income Taxes – states and cities
impose income taxes patterned after
Federal System

20
Difference is tax _______________



Percentage of cost of each purchase
Paid when ___________ food, gas,
etc…
Divided between local and state
governments
Property Taxes – tax on value of
real property
3.




Gov’t estimates value of land,
structure, etc…
Tax is percentage of _____________
Used by local governments & schools
Can be added to house
_____________(called escrow
account)
5.3 Taxes and Government
4.
5.
6.
21
Excise Taxes – collected on sale of
specific goods and ______________.

Ex. Tobacco, gasoline, & alcohol

Included in the price
Estate and Gift Taxes

Estate – when a person dies, property may be
inherited by those legally ________to the
estate

Only estates of a certain amount and higher are
_____________________

Gift – giver of gifts may have to pay if $12,000
or over as of 2008.

Tax increased at times due to inflation
Business and License Taxes

To operate certain businesses, must have
license, permit, or stamp.

Tax is paid for certification, which may have a
___________ (ex. Doctors, etc…)
7.
Customs Duties and Tariffs

taxes to control the flow of products imported
into the ________________

Imposed on some imports

Results in some items from abroad to be sold at
_____________ prices than they otherwise
would be
Assignment
- Answer questions on p. 178, #1-4
5.4 Government Spending
 The Power to Influence
 Used to influence consumers’ buying
_________________
 Taxing means fewer people will buy it
 Example – “Sin” taxes on legal goods that
are bad for your health. What item is
taxed like this?
____________________
 Tax Cuts
 Lower taxes = more beneficial choices
 In 2008, President Bush led congress to
give a tax rebate to encourage consumers
to ____________________
 High unemployment areas reduced
property taxes for businesses
 Can also deduct because donated to
________________________
22
 Government Spending
 Federal gov’t spends or transfers more





than $2.65 ____________ each year
State & local spend half as much
Your cost = $___________ per year
Most spending pays for goods and
services that benefit all Americans
Public Goods – roads, schools,
national defense, etc…
Federal tax dollars used in ____
major areas
Vocab Definition & Sentence
25. Public Good -
5.4 Government Spending
 Types of Federal Spending
1.
Social Security, Medicare, and other retirement
programs - _____%
2.
National Defense – ______%
3.
Social Programs, such as food stamps and
unemployment – _______%
4.
Physical, Human, and community
development(education, general science, & space
program) – __________%
5.
Interest on National Debt – ______%
6.
Law Enforcement & general government –
____%
 Debt Reduction
23
Federal Spending
S.S., Medicare,etc.
Nat'l Defense
Social Programs
Physical,Human &
Community

Late 1990’s thru early 2000’s had tax _______
used to pay down national debt
Interest on Nat'l
debt

By 2002, fed. Gov’t spending more
Law Enforcement
5.4 Government Spending
 What State and Local
Governments Provide
Regulations
 Building and maintaining ________
 Enforce many rules and _______
 Operating police and fire ________
Example: driver’s license,
building permit
 Create order and safety in states and
local _________________
 Maintaining a criminal justice system
 Building and staffing schools
 Building and operating state colleges
and _____________
 Supporting medical facilities
 Constructing and operating sewage
treatment ____________
 Operating unemployment
compensation ________________
24
 State and Local Government

Assignment
P. 183, #1-8