HOW MUCH OF YOUR INCOME WILL YOU KEEP?

TAXES

PAYROLL TAXES

The federal government receives the largest part of its revenue from payroll taxes.

Placed on income earned by individuals.

Based on the individual’s total earnings and the tax laws that apply to that type of income

Paid to the government by individual emp0loyees and their employers.

INCOME TAXES

Taxes you pay on most types of income you receive.

Range from 10-35% of taxable income

YOU are responsible for calculating the amount of federal income tax you owe.

FICA

Federal Insurance Contributions Act

The law that requires workers and their employers to contribute to Social Security and Medicare.

WITHHOLDING

Deducting money from your wages

This $ goes to prepay your federal income and social insurance taxes.

Withholding enables the government to collect taxes at a steady rate rather than all at the end of the year.

This way you don’t face a huge tax bill at the end of the year

GROSS INCOME

The amount you earn before taxes are withheld.

NET INCOME

Is the amount you receive after withholdings are subtracted from your gross pay

GROSS INCOME – WITHHOLDINGS = NET INCOME

Form W-4

The amount of income that you owe to the federal government depends on several factors. (your gross income, the number of people you support, and other expenses that you pay.)

When you are hired, your employer will ask you to complete a W-4 which is required by law.

Provides the information your employer needs to determine the proper amount to withhold from your paycheck.

INTERNAL REVENUE SERVICE

Federal agency that collects income taxes

TAX RETURN

a set of forms that taxpayers use to calculate their tax obligation.

W-2

A summary of your earnings and withholdings for the year.

When you file your tax return, you must enclose a copy of your W-2.

1099-INT

A statement of the interest your bank paid on your savings that year.

Just as employers do with a W-2, the bank sends a copy of the Form 1099-INT to the IRS.

Information from the W-2 and the 1099-INT is enough for most young people to complete their income tax returns.

1040-EZ

YOU MUST MEET THE FOLLOWING CRITERIA: You are single or married and filing jointly with your

spouse You have NO dependents (people you support

financially) You and your spouse are under the age of 65 Neither you nor your spouse is blind You have a taxable income of less than $100,000 You earned no more than $1,500 in interest. You had no income other than wages, interest, tips,

scholarships, or unemployment compensation

Form 1040 & Form 1040 A

When you are older, your financial life is likely to be more complicated. You may own a home, have children, invest in the stock market, or run a small business.

Then you may be required to use Form 1040A or 1040.

This allows you to list or itemize your deductions.

Deductions

Expenses that you can legally subtract from your income before calculating your taxes.