Income Tax - Rantoul Township High School
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Transcript Income Tax - Rantoul Township High School
Income Tax
Applied Business Practice
Fact or Myth?
A good way to save is to have more
money than necessary withheld from
your paychecks, so you will receive a
big tax refund at the end of the year.
The tax system is too complicated for
ordinary taxpayers to understand
Kelly found a part-time job after school
that pays $7.50 per hour. E wants to
take home at least $50 per week, so
she agreed to work seven hours each
Saturday. She expected her first
paycheck to be $52.50. She was
surprised to find it was only $40.39.
Why wasn’t Kelly’s check larger?
Taxes and Your Paycheck
FICA
Federal Insurance Contributions Act
Social Security and Medicare
Gross Income
Amount you earn before taxes are
withheld
Net Income
Amount you receive after withholdings
are deducted from your gross pay.
Taxes and Your Paycheck
Withholding
Deducting money from your wages to
collect payroll taxes
How does withholding benefit you?
It spreads tax payment over time, to
avoid one huge payment
PAYCHECK STUB
ABC Company
144 E. Central Ave.
Hometown, ST 32122
Check No
Employee Name:
Jane Smith
Employee Address: 986 Park St.
Hometown, ST 32122
Check Date: 07/22/05
Earnings
0556789
Employee Social
Security Number: 433-211-1234
Pay Period Ending:07/22/05
Hours:
Rate:
20
6.25
$
Gross Pay
$125.00
Deductions
Federal Income Tax
Social Security Tax
Medicare Tax
State Tax
$18.75
$ 7.75
$ 1.81
$ .50
Total Withholding
$28.81
Gross Pay
Total Deductions
$125.00
$ 28.82
Net Pay
$ 96.19
Warm-Up
Should you reduce your allowances
(on your W-4) to force yourself to
save? Why or why not?
Warm-up
1. How do you and other taxpayers
benefit from the taxes you pay?
2. What is the purpose of Form W-4?
3. What is an allowance on form W-4?
4. What is your main goal in
determining how many allowances to
claim?
Taxes and Your Paycheck
Form W-4
Provides the information of the amount
to withhold from your paycheck.
Completed by the Employee
IRS
Internal Revenue Service
Federal agency that collects income taxes
Taxes and Your Paycheck
Allowances
Number that reduces the amount of
money withheld from your pay
Larger number of allowances, smaller
amount withheld
A Bit of History
What amendment established the
current income tax system?
16
When was this amendment ratified?
Feb 3, 1913
Why was it necessary to make this
part of the constitution?
Taxes and Your Paycheck
Withholding too much
Students who work part-time during
school, but full time during summer may
have more withheld
Results in a refund
Withholding too little
Results in a tax bill
May need to lower your allowances
Taxes and Your Paycheck
Overwithholding as a way to save
Force a savings plan
Claiming too few allowanced guarantees
a refund
Is this a good savings plan?
It is not a good savings plan because
the government does not pay interest
Warm-Up
How do you think taxes influence
consumer’s decisions?
File a Tax Return
Tax Return
Set of forms used by taxpayers to calculate tax
obligation
Minimum Income to file a return
If you worked and had Federal income taxes
taken out – file
If you are self employed and earned $400 - file
Filing must be in by
April 15th every year!
File a Tax Return
Income
Wages
Tips
Earned Interest
Cash earned for jobs
File a Tax Return
Form W-2
Summary of your earnings and
withholdings for the year for a job
Must send in a copy with your W-2
Employer sends a copy to IRS
a Control Number
2233
void
For office use only ►
OMB No. 1234-0001
b Employer Identification number
1. Wages, Tips, other
compensation
78-65412
2. Federal Income Tax Withheld
5,001.88
c Employers name, address and zip code
ABC Company
144 E. Central Ave.
Hometown, ST 32122
975.00
3. Social security
wages and tips
4. Social Security Tax Withheld
5. Medicare wages
and tips
6. Medicare Tax Withheld
7. Social Security Tips
8. Allocated Tips
5,001.88
403.00
5,001.88
d Employee’s Social Security Number
433-211-1234
94.12
9. Advanced EIC payment
e Employees Name (first, middle initial, last)
Jane Smith
986 Park St.
Hometown, ST 32122
F Employee’ address and ZIP code
16
State
ST
Employer’s State ID no.
78-65412
10. Dependent Care Benefits
11 Non-Qualified Plans
12. Benefits included in box 1
13. See instrs. for box 13
14. Other
15 statutory
employee
deceased
17 State Wages, tips, etc
5001.88
pension
plan
legal
rep.
18 State income tax
26.00
deferred
compensation
File a Tax Return
Form 1099-INT
Statement of interest your bank paid on
your savings that year
Banks send this information to the IRS
Income Tax Forms
1040 EZ
Simplest of the tax forms
To Qualify to use the EZ form:
No dependents
You and spouse under age 65
No blindness
Income less than $50,000
Earned no more than $400 in interest
No income other than wages, interest, tips,
scholarships, or unemployment compensation
Filling Out the 1040 EZ
Identifying yourself
Social Security Number
Unique number used to identify you
throughout your entire life
Income Tax Forms
Form 1040
More complex form
Deductions
Expenses you can legally subtract from
your income when figuring your taxes.
Own a home
Children
Run a small business
Stocks
Dependent
Someone you financially support
File a Return
Refund
When your withholding is more than the
taxes owed (Government pays you the
overage amount paid)
Amount You Owe
When your withholding is less than the
taxes owed (you pay the remaining
amount due)
Taxes and Government
Sources of Federal Government
Income
Personal Income Tax
Social Security, Medicare,
Unemployment, & Other Retirement Tax
Borrowing
Corporate Income Tax
Excise, Custom, Estate, Gift, & Misc. Tax
Sources of Fed. Gov’t. Income
Social Sec., Medicare,
Unemployment, other retirement tax
33%
42%
Personal Income Tax
Taxes and The Government
Where does the government get its
money?
42% Personal Income Taxes
33% Social Security Taxes, Medicare,
and unemployment taxes
Who contributes to pay Medicare and
Social Security?
Employees (pays a max of 7.65%)
Employers (pays a max of 7.65%)
Warm-Up
Why should you check your work
before filing your tax return?
Principles of Taxation
Benefit Principle
Those who use a good or service
provided by the government should pay
for it
Example: toll roads
Ability to Pay Principle
Those who have larger incomes should
pay a larger share of what they receive
As your income increases your rate of tax
increases from 15 – 39.9%
How Taxes Are Collected
Direct Taxes
Paid directly to the government
Examples: income, property
Indirect Taxes
Taxes you pay that are included in the
cost of a good/service
Examples: Hair care services
How Taxes Are Collected
Pay-As-You-Earn Tax
Taxes paid as you earn income
Example: withholdings on your paycheck
Types of Taxes
Sales Tax
Taxes added to the price of goods and
services
Property Tax
Taxes on the value of real estate
property
Types of Taxes
Excise Tax
Collected on sale of specific goods or
services
Tobacco
Gas
Alcohol
Oil
Firearms
Air travel
Types of Taxes
Estate Taxes
Taxes on property received when
someone dies
Gift Tax
Paid for by the giver of gifts that exceed
12,000 (for 2006)
Types of Taxes
Business (License) Tax
Tax paid for certification
May be accompanied by a test
Warm-up
Gross Pay = $800
Federal Tax = 14%
State Tax = 4.5%
Social Sec. = 6.2%
Medicare = 1.6%
What is the total Withholdings?
What is the Net Pay?
Government Spending
Sin Taxes
Taxes on items that can be harmful to
your health
Tobacco
Alcohol
Warm-Up
Gross Pay = $685
Federal tax = 14%
State tax = 2%
Social Security = 6.2%
Medicare = 1.5%
What is the total (dollar amount)
withholdings?
What is net pay?
How you can reduce tax obligation
# 1 way to lower taxes
Give to charities
Government Spending
Federal Government Spends on:
Social Security, Medicare, other
retirement
National Defense, veterans, foreign
affairs
Social Programs
Interest on Debt
Community Development
Government Spending
State and Local government spends
on:
Buildings and roads
Police, Fire protection services
Criminal Justice system
Schools
Colleges, University
Sewage treatment plants
Unemployment compensation plans