personal finance: module 1 lesson 4 tolls along the way
TRANSCRIPT
Personal Finance: Module 1 Lesson 4
Tolls Along the Way
Taxes, after all,
are dues that we pay for the
privileges of membership in an
organized society.
Franklin D. Roosevelt, 32nd President
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“
”
What are Taxes?
Taxes are required monetary payments to
a government.
Governments uses taxes
to pay for and to provide
services designed to protect
and enhance the life of its
citizens.
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The History of Taxes
Systems for collecting taxes date back
to ancient civilization.
Taxation of income in the United States
began in the 19th century.
The Internal Revenue Service
(IRS) is the tax collection agency
for the U.S. federal government.
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Why do we pay taxes? We pay taxes because the services they provide are
necessary and essential for all citizens.
The price of these services would be too high for most
citizens to provide these services just for their family!
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Your role as a taxpayer
Why Pay Taxes?
Progressive Tax System Based on the individual’s ability to pay
Lower income earners pay less tax
Income tax is an example of a progressive tax
Regressive Tax System
Tax percentage is same regardless of income
Places a greater tax burden on those with less income
Sales tax is an example of a regressive tax
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United States Tax Systems
Each branch of government usually collects a
separate set of taxes to fund it’s operations.
However, taxes collected at one level may also
be combined to help fund programs at another!
Federal (U.S.) State Local (county & city)
Who collects taxes?
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Property Taxes are paid by people who own property
(land, a home, or real estate).
Transaction Taxes are paid on goods and services.
o Sales Tax is charged when a consumer makes a purchase.
This tax is a percentage of the total price of the purchase.
o Excise Tax is charged on the purchase of specific goods
such as motor fuel, cigarettes, or alcohol. This tax is usually
included in the price of the item.
Taxes Collected by a County or City
What is taxed and why
Federal/State/Local Taxes
Tax Terms Withholdings – money that is required by
law to be deducted from an employee’s
pay Income Tax (Federal & State)* Social Security Tax Medicare Tax
Gross Income – employee’s total earnings
Net Pay (also called take-home pay) –
money remaining after withholdings and
other deductions are subtracted
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*Not all states collect a separate state income tax!
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Federal income tax is the largest tax amount
deducted or withheld from your paycheck.
The amount withheld is based on the employee’s
income and number of allowances.
Allowances reduce the amount of federal income
tax withheld from your paycheck.
Allowances are claimed when an employee completes the
required IRS Form W-4 Employee Withholding Allowance Certificate.
Federal Income Tax
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To view W-4 worksheet:Form W-4 Employee Withholding Allowance Certificate
Form W-4
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Most−but not all−states have an income tax.
State income tax is also withheld and reported on W-2.
If state requires it—also complete a state income tax
return it to your state’s Department of Revenue.
State income taxes fund
many of the same types
of programs and projects
as federal taxes!
State Income Tax
Additional Payroll Taxes
Social Security Tax provides income for retired
workers and their dependents as well as for the
disabled and their dependents.
Medicare Tax pays for health insurance to offset
the cost of medical care for retired persons
(and their spouses) who are eligible to receive
Social Security benefits.
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Example of a Paycheck StubEmployee
NameEmploye
e IDPay Period
John Doe 00258 2/10/13 – 2/23/13
Earnings Hours Rate Gross Income
Year-To-Date
Regular 80 $15.00 $1,200.00 $4,800.00
Taxes
Federal Income Tax
$74.54 $298.16
Social Security $48.30 $193.20
Medicare $16.68 $66.70
State Income Tax $29.76 $119.04
Benefit Deductions
Health Insurance $120.00 $480.00
Dental Insurance $10.00 $40.00
Life Insurance $15.00 $60.00
401(k) Retirement Plan
$50.00 $200.00
Net Income $832.90 $3,331.60
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Links and Activities
These links and activities help you understand more
about withholdings and other payroll deductions:
Payroll Taxes and Federal Income Tax Withholding
What Ate My Paycheck?
Read and Interpret Pay Stubs (pages 5-7)
Understanding My Pay Stub
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Filing Your Income TaxesForm W-2 Wage and Tax Statement
Lesson with worksheetsPayroll Deductions and Earning Statements
Shows taxable income actually received (#1)
Shows total amount of income taxes already withheld (#2)
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Filing Your Income Taxes
Once you receive your W-2 form, the IRS expects you to:
1. Fill out an income tax return and calculate the correct
amount of federal income tax that should be owed (or
refunded).
2. File it (electronically or by mail) by the deadline
(which usually falls on April 15).
Wage and tip income
Using Your W-2
to File Your 1040EZ
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Filing Your Income Taxes
1040
1040EZ
1040A
Tax basics
The Final Step: Filing Taxes
Tax Return Forms
? ?
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Taxes, after all, are dues that we
pay for the privileges of membership
in an organized society.
Franklin D. Roosevelt, 32nd President
What do you think he meant by “an organized society”?
Without taxes, where would you go to school? What
would you do with your trash? Who would build the
roads, bridges, and interstates you travel on?
“
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