taxes - lindfcs.weebly.com · key terms •income –wages received in exchange for labor •gross...
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Understanding Taxes …and understanding your paycheck!
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Objectives
• Summarize the purpose of paying taxes.
• Recognize the parts of a paystub.
• Differentiate between net and gross income.
• Explain what W-2 and W-4 forms are and what they are
used for.
• Complete a 1040EZ tax form.
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Key Terms
• Income – wages received in exchange for labor
• Gross pay – amount of money made before taxes are withheld
• Net pay – amount of money that people receive after paying taxes on their income
• Income tax – tax on the amount people earn
• People who earn more pay a higher percentage of their income in taxes
• Dependents – a Qualifying Child or Qualifying Relative for whom you can claim a tax exemption.
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Primary Sources of
Employment
• Hired by a business or an employer
• You are self-employed
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Salary vs. Hourly Wage
Salary
• Set amount of $
• Not dependent on number of hours worked
• Example: $30,000/year
Hourly wage
• Specific rate for every hour worked
• Example: $16.00/hour
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• WEEKLY
• 52 pay periods a year
• BI-WEEKLY
• 26 pay periods a year
• BI-MONTHLY
• 24 pay periods a year
• MONTHLY
• 12 pay periods a year
Pay Periods
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Payroll Deductions
Gross income: Amount of
money earned before payroll
taxes
DeductionsNet incometake home
pay
Mandatory Optional
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Taxes - Overview
Income
Payroll
Property
Sales
Excise
Withheld
from
wages
Paid at the
time of
purchase
INCOMEFederal Income Tax
State Income Tax
PayrollSocial Security
Medicare
Insurance
Retirement
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Why do we pay taxes?
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Internal Revenue Service
(IRS)
• The IRS is the U.S. government agency responsible for
tax collection and tax law enforcement.
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Exemptions and
Deductions
• Personal and dependent exemptions for yourself and
qualifying family members reduce the amount of income
on which you will be taxed.
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W-4 (Federal)
• Federal Tax
• Allows employers to determine what amount of income tax
they should deduct from each employee’s paycheck based
on that person’s situation
• The IRS recommends that employees submit a W-4 form
• Each year
• Any time their personal or financial situation changes.
• If over the course of the year more of your income than
necessary was withheld, you will receive a refund from the
federal government. If you did not withhold enough
income, you will owe the federal government more money.
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W-4 (Federal)
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W-4 (Federal)
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• Claiming 0 Allowances • Maximum taxes withheld
• Likely to get a sizeable tax refund
• If you are a dependent on someone else’s tax return you should claim 0
• Claiming 1 Allowance• Best option if you are single with one job
• Will likely get a tax refund
• Claiming 2 Allowances • If you are single, claiming two allowances will get you close to your
tax liability but may result in tax due when filing your taxes.
• If you are single and work more than one job, you can claim one allowance at each job or two allowances at one job and zero at the other.
• If you are married, you should claim two allowances
• Claiming 3 Allowances• If you are married and have one child, you should claim three
allowances.
• Additional Allowances
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W-4 (Federal)
• What should you claim?
• Give it a try!
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W-4 (Iowa)
• Iowa Tax Withholding
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Pay Period:
The lengthof time for
which an
employee
earns wages
Reading Your Paystub
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Gross Income:
The total
amount of
money earned
before payroll
withholdings
Reading Your Paystub
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Payroll Deductions:Items deducted
from gross pay.
Typically around
30%.
Typically include:
• Federal
withholding
• State
withholding
• FICA
Reading Your Paystub
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Deductions this pay
period
Accumulated
deductions for the
year
Reading Your Paystub
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Net Income:The check
amount that
is often
referred to as
the take
home pay.
Reading Your Paystub
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W-2 (Federal)
• The W-2 form is the form that an employer must send to
an employee and the Internal Revenue Service (IRS) at
the end of the year.
• The W-2 form reports an employee's annual wages and
the amount of taxes withheld from his or her paycheck.
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W-2 (Federal)
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Example
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Confused about the W-2?
• http://www.forbes.com/sites/kellyphillipserb/2014/02/11/
understanding-your-tax-forms-the-w-2/#687ff7af4756
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1099 (Federal)
• Reports income from self employment earnings, interest
and dividends, government payments, and more.
• Usually provided by a bank or other organization or filled
out by an individual using information from accounts.
• There are several different forms to choose from so be
sure to file the correct forms!
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1099 (Federal)
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1040EZ / 1040A / 1040
(Federal)
• The IRS Form 1040 is one of the official documents that
U.S. taxpayers can use to file their annual income tax
return (three types).
• The form is divided into sections where you can report
your income and deductions to determine the amount of
tax you owe or the refund you can expect to receive.
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1040EZ (Federal)
Step-by-Step
• http://www.wikihow.com/Fill-Out-a-US-1040EZ-Tax-
Return
• Let’s try to together!
• Income: $40,000
• Taxable Interest: $500
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1040 IA
(Iowa)
• IA taxpayers can use to file their annual income tax return
• The form is divided into sections where you can report
your income and deductions to determine the amount of
tax you owe or the refund you can expect to receive.
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How to File
• Paper copy – mail in (FREE)
• Online copies – mail in or submit electronically (FREE)
• H&R Block – Software ($40)
• Asks basic questions
• Helps to fill out form
• Adds/subtracts for you
• Accounting Firm ($100+)
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What You Need!
• Personal Information (Tax-Related Information)
• W-4 Form (Federal Tax Withholding Form)
• W-2 Form (Federal Income Information)
• 1099 (Federal Savings Account Interest)
• 1040EZ (Federal Tax Filing)
• IA W-4 Form (Iowa Tax Withholding Form)
• W-2 Form (Federal Income Information)
• 1040 IA (Iowa Tax Filing)
• YOU MAY NEED MUCH MORE!
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Resources
• https://tax.iowa.gov/
• https://www.irs.gov/
• Iowa Tax Table
• https://tax.iowa.gov/sites/files/idr/forms1/2017TaxTables.pdf
• Federal Tax Table
• https://www.irs.gov/pub/irs-pdf/i1040ez.pdf