Vocab/Definitions WS
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Lesson 1
Introduction
Note: All information is based on 2011 data
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Did You Know
 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
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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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Objectives…
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





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Basic Tax Law
Exemptions
Dependents
Withholdings
Payroll Taxes
Income
Deductions
When and How to File a Tax Return
(We will focus on Federal Tax in this Unit)
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Lesson 2
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 you make for the rest
of the calendar year, you may not have to pay federal
income tax. If this is you, you would be EXEMPT from
paying
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Are you Exempt?

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 $5800)
If under 19 or a full-time student (or until 24 yr/full time)
If have to pay, will depend on if parents CAN 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
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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 $5800 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 FULLTIME Student!
In-Class Am I Exempt WS
Am I Exempt WS
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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
less tax withheld from paycheck
 Claim “0” will result in the largest amount of tax to be
withheld
Do: Pg. 6 then Fill out W4 WS
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What if I Make a Mistake?
 Claim exempt and make more than
$5800?
 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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Lesson 3
Where’s All The
Money I Earned?
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Where’s All The Money I Earned?
 Payroll Taxes
 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
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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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P. 10 - verbal
W4 qz/Am I Exempt QZ
Lesson 4
What’s This,
More Forms?
W-2s and 1099-INTs
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What? More Forms?
 W-2 – will have 3 copies
 Your records
 Attach to state tax return
 Attach to federal tax return
 1099-INT
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The W-2
 Must receive these by January 31st 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
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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!
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W-2 and 1099-INT will help
you to determine whether
you are required to, or
should, file a federal tax
return!
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Lesson 5
Am I Required
to File a Tax
Return?
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Am I Required to File a
Tax Return (as a dependent)?

Due April 15!

Required?
Depends…
3.
Filing Requirement Worksheet for Most Dependents
1.
*Your income for the year
2.
*If parents can claim you,
you must file if:
3.
1.Your unearned income
was over $950
2.Your earned income was
over $5800
Calculate Gross Income:
(earned income + unearned income)
Enter dependent's earned income plus $300
Minimum amount
4.
Compare lines 2 and 3. Enter larger amt
(Adjusted Earned Income)
5.
IS: Gross Income > Adjusted Earned Income?
MUST file
6.
IS: Gross Income < Adjusted Earned Income?
DOES NOT have to file
$950
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.
Calculate Gross Income:
(earned income + unearned income)
2.
Enter dependent's earned income plus $300
3.
Minimum amount
4.
Compare lines 2 and 3. Enter larger amt
(Adjusted Earned Income)
5.
6.
IS: Gross Income > Adjusted Earned Income?
MUST file
IS: Gross Income < Adjusted Earned Income?
DOES NOT have to file
$950
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.
Calculate Gross Income:
(earned income + unearned income)
2.
Enter dependent's earned income plus $300
3.
Minimum amount
$950
4.
Compare lines 2 and 3. Enter larger amt
(Adjusted Earned Income)
5.
6.
IS: Gross Income > Adjusted Earned Income?
MUST file
IS: Gross Income < Adjusted Earned Income?
DOES NOT have to file
Do I have to file return WS
Lesson 6
Should I File a Tax
Return?
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Should I File a Tax Return?
 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!
1-6 Review
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Forms?
 There are 3 forms you can choose from
to file
 1040EZ – simplest to file
 1040A
 1040 – most lengthy to file
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Lesson 7
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
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Sending in the Return
 Photocopy the EZ form for record
 Mail in W-2 & 1099 INT with return
 Check 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
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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 duties (imports)
 Other miscellaneous receipts
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Where Does Your Money GO?
Year 2011 – in billions
of dollars
National Defense
% of debt
718 Billion
20%
Social Security
731
20%
Healthcare (Medicare,
769
13%
Interest on National
Debt
230
6%
Education
72
2%
Medicade, child health ins program)
Chap 7 review
1040 EZ quiz
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Lesson 8
How Do I File the
1040 Form?
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How Do I File 1040 Form?
 File this form if:
 Received dividends or capital gains from an
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

investment
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
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Preliminaries Matter
Be sure to have:
 1099 Dividends &
Distributions form
 Any records of receipts

Ex: E-Bay, lottery, drawings
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Filing Status and Exemptions
 Filing status affects amount tax paid
 Exemptions
 $3700 each exemption may be subtracted
from adjusted gross income
 Exemptions help reduce taxable income!
 But you probably won’t qualify
 More than likely, parents can claim you
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What is Income?
 Income: “all income from whatever source
derived”
 Types of Compensations for Services:
 Fees
 Commissions
 Prizes and awards
 Fringe benefits

Tickets, clothing given to you by employer instead
of money
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Other Income Continued…
 Income derived from business
 Deductible expenses
 Must be “ordinary and necessary”
 Interest and Dividends
 Earnings/Profits to persons who own stock
 Considered taxable income
 Capital Gains and Losses
 Capital gain: profit from the sale or exchange of
investment
 Short Term
 Long Term
 Reported on 1099-DIV
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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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Adjusted Gross Income (AGI)
 Income reduced by certain expenses
 Ex:
 Student Loan Interest
 One half of self-employment tax

Schedule SE
 Penalty on early withdrawal of savings

Ex: Certificate of Deposit
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Standard & Itemized Deductions
 Standard Deduction: Base amount of income
that is not taxed (reduces taxable income)
 Income: $5800
 Itemized Deduction:
 State and Local Taxes
 Gifts to Charity
 Job Expenses – mileage?
 Travel
 Uniforms – if not adaptable to general, everyday use
 Education – if maintain or improve skills and/or meet
requirements of employer
 Other: tools, supplies for job, professional journals,
protective clothing
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Credits
 A direct reduction of tax owed
 Credit actually deducted from the amount
you owe (dollar for dollar)
 Credits offered:
 Encourage certain behavior
 Assist those in need
 Provide relief
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Credit Examples
 Child Care Expenses
 Elderly or Disabled
 Adoption Expenses
 Buying new electric car
 Education expenses
 Form 8863
Refundable Credit: EIC – person who claiming receives FULL
amount of credit even if exceeds tax liability
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Payment or Refund?
Payment:
 Due April 15
Refund:
 Check
 Direct Deposit
1040 Prob WS
Chap 8 Review
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Lesson 9
Conclusion
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