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Payroll Taxes
• Payroll Taxes are taxes based on the payroll of a business
• These taxes are paid to the government by you and your employer
• Payroll Taxes include income taxes and social security taxes.
Income Taxes
• Income Taxes are taxes you pay on most type of income you receive.
• Income taxes are not a fixed percentage of income that all Americans.
• The amount varies, depending on each taxpayer’s financial and family situation.
• Some taxes on income support social programs.
Virginia Tax Rates
IF YOUR VIRGINIA TAXABLE INCOME IS:Not over $3,000, your tax is 2% of your Virginia taxable income.
but not your tax of excessover— over— I s— over—$ 3,000 $ 5,000 $ 60 + 3 % $ 3,000$ 5,000 $ 17,000 $ 120 + 5 % $ 5,000$ 17,000 $ 720 + 5.75 % $ 17,000
ExampleIf your taxable income is $90,000, your tax is $720 + 5.75% of the amount over $17,000.This equals $720 + (.0575 x $73,000) = $720 + $4,197.50 = $4,917.50 which should be rounded to $4,918.
FICA
• Federal Insurance Contribution Act
• The law that requires workers to contribute to social security and Medicare.
Withholding
• Your employer collects payroll taxes by deducting or withholding money from your wages.
• Withholding enables the government to collect taxes at a steady rate, rather than at the end of the year.
• Withholding also makes it more likely that people will pay their taxes.
Your pay Stub
• Gross income is the amount you earn before taxes are withheld.
• Net Income is the amount you receive after withholdings are subtracted from your gross pay.
Form W-4
• When you are hired your employer will ask you to complete federal form W-4.
• Form W-4 provides the information your employer needs to determine the proper amount to withhold
from your paycheck.
Your Responsibility for Proper Withholding
• If the amount withheld from your paycheck during the year is not close to the total tax you owe, the Internal Revenue Service may fine you.
• The Internal Revenue Service (IRS) is the federal agency that collects income taxes.
Allowances
• A worksheet provided with your W-4 tells you how to calculate the number of allowances you should claim.
• An allowance is a number that reduces the amount of money withheld from your paycheck.
• The larger the number of allowances you claim, the smaller the amount withheld.
Questions
• How do you and other taxpayers benefit from the taxes you pay?
• What are payroll taxes?• What is the purpose of Form W-4?• In what type of situations should you
consider claiming extra allowances?• What is your main goal in determining how
many allowances to claim?
Your Income Tax Return
• A tax return is a set of forms that taxpayers use to calculate their tax obligation.
• Income– Wages– Tips– Interest
Sources of Information for Your Tax Return
• Form W-2– This form is a summary of your earnings and
withholdings for the year for a job.
Sources of Information for Your Tax Return
• Form 1099-INT– This form is a statement of the interest your
bank paid on your savings that year.
Fill Out the 1040EZ• Identify Yourself
– Social Security Number
• Income– Your income today is
$64,250.00– Your Taxable Interest is
$148.35
• Unemployment Compensation– This amount is $0.00
• Adjusted Gross Income– Amount of all above added
together
Fill Out the 1040EZ• Determine Your
Dedications– Yours is $9350
because you are single• Your Taxable Income
– Adjusted Gross – Deductions
• Federal Income Tax Withheld– $10,835
• Did you get a refund?
Questions
• What information do you need to complete a Form 1040EZ, and where does it come from?
• What is the difference between adjusted gross income and taxable income?
• Why should you check your work before filing your tax return?
Taxes and Government
• Contributions to Social Security– Under FICA regulations, workers’ wages are
taxed at a rate of 6.20%– This percentage is collected on gross income
up to a maximum level that is adjusted each year.
– In 1999 the maximum income taxable for social security was 72,800.
Taxes and Government Cont.
• Contributions to Medicare– An additional 1.45%is taken on all earned
income to pay for the Medicare program.• Your Employer’s Contribution
– Employers match employees’ payments for social security and Medicare.
– For each dollar you earn up to the maximum amount, 15.3 cents goes to the government for these taxes.
Taxes and Income
• There are 3 ways taxes are based on share of income they take as people’s income change– Progressive Tax
• Takes a larger share of income as the amount of income grows.
• Someone who makes $25,000 would pay 15% while someone who made $350,000 would pay 39.6%
Taxes and Income
• Regressive taxes– These taxes take a smaller share of income as
the amount of income grows.• Sales Tax
– Joe 20,000 (pays 6% on 10,000 car) 3 percent of his income
– Sally 50,000 (pays 6% on 10,000 car) 1.2 percent of her income
• Proportional taxes– Takes the same share of all peoples taxes
• No examples
How taxes are Collected
• Direct– Taxes are paid directly to the government
• Indirect– Taxes you pay that are included in the cost of a
good• Landlords put property taxes in there rent
• Pay-as-you-earn– Federal withholdings
Types of Taxes
• Income Taxes– Most states and some cities have income
taxes patterned after the federal system• Federal 15% to 39.6%• States less than 10%
• Sales tax– Taxes added on to the price of goods and
services at the time of purchase• Property taxes
– Taxes on the value of real estate property.
Types of Taxes
• Excise taxes– Taxes on sale of specific goods and services.– Such as tobacco, gasoline, and alcoholic
beverages, firearms, air travel• Estate and Gift Taxes
– Taxes on property which will be received by those legally entitles to the estate.
– Gift taxes are taxes that may be paid by the giver of gifts worth more than 10,000
Types of Taxes
• Business and License Tax– To operate certain kinds of business,
companies, individuals have to have license, permit, or stamp
– These taxes are paid for these certifications• Customs Duties and Tariffs
– To control the flow of products that are imported into this US.
– This sometimes results in items from abroad being sold at higher prices.
Questions
• What is the largest source of federal government revenue?
• Which governments benefit from sales taxes?
• What are the principals of taxation?• What is the difference between sales and
excise taxes?
Tax Cuts
• Lower taxes encourage consumers to make beneficial choices.
• New York eliminated sales taxes on certain products for short periods of time to encourage consumer spending to improve the economy
• Many local governments in areas with high unemployment reduce property taxes for businesses that operate there.
Charities
• If you contribute to a charity, the government may allow you to deduct your contribution from your adjusted gross income.
• This tax break influences many people to give more to charities.
What State and Local Governments Provide
• Buildings and maintaining local roads• Operating police and fire protection• Maintaining a criminal justice system• Building and staffing public schools• Building and operating state colleges and
university
No Sales Tax States
• Sales taxes in the United States are assessed by every state except Alaska, Delaware, Montana, New Hampshire and Oregon. Hawaii has a similar tax although it is charged to businesses instead of consumers.
No Income Tax States
• Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income.
Best and Worst States for Taxes
• Even if you live in the most heavily taxed state, Maine (which collects an average of 13.5% of residents' income), you might not be ready to high-tail it to Alaska, the state with the lowest taxes (6.6%, and the only state that lacks both sales and income taxes), unless you have an affinity for mosquitoes and seemingly endless tundra.