Taxes. The Federal Government Dollar – Where it Comes From.

TaxesTaxes

The Federal Government The Federal Government Dollar – Where it Comes Dollar – Where it Comes FromFrom

The Federal Government The Federal Government Dollar – Where it GoesDollar – Where it Goes

Tax TermsTax TermsTax Evasion: Failure to pay

legally due taxesTax Avoidance: Legal means of

decreasing your tax billYour rights as a taxpayer:

◦Information on taxpayer returns is private

Fill Out a W-4 for Fill Out a W-4 for Lawrence:Lawrence:

Allowances and Allowances and WithholdingWithholdingWithholding allowances: 0 1

2 Amount of tax withheld: $61 $52

$44  Can you describe the relationship

between the number of allowances claimed on Form W-4 and the amount of tax withheld?

Calculating PayCalculating Pay• Gross pay is the amount the

employee earns• Net pay, or take-home pay, is the

amount the employee receives after deductions

• The difference between gross pay and net pay is:–Social Security taxes–Medicare taxes– Income tax withheld–Other amounts withheld

• Employers send the withheld taxes to the taxing authorities

6.2%

1.45%

Social Security TaxSocial Security TaxAlso called the FICA (Federal

Insurance Contributions Act) taxProvides the following benefits

for employees and their dependents:◦retirement benefits◦benefits for the dependents of

retired workers◦benefits for the disabled and their

dependents

Medicare TaxMedicare TaxAlso called the FICA (Federal

Insurance Contributions Act) taxUsed to provide medical benefits

for certain individuals when they reach age 65.

Comprehensive ExampleComprehensive Example

• Angela Viviano earns $2,000 a month as a physical therapist's assistant. Her employer withholds $50 for her retirement account. Angela's net pay is calculated as follows:–Gross pay $2,000.00 – Social Security tax (6.2 percent of gross pay): –Medicare tax (1.45 percent of gross pay):– Income tax (per Form W-4): -$220.00 – Retirement: -$50.00 –Net pay:

• Angela earns $2,000 and receives• Her employer sends to the

federal government and $50 to the retirement fund.

-$124.00

-$29.00

$1,577.00 $1,577.00

$373 ($124 + $29 + $220)

ExemptionsExemptions• There are two types of exemptions: • personal exemptions• dependency exemptions

• Each exemption reduces the income that is subject to tax

• The exemption amount changes every year• In 2009, the exemption amount was

$3,650• A taxpayer cannot claim an exemption

for a person who can be claimed as a dependent on another tax return

ExemptionsExemptions• Personal Exemptions• Personal exemptions can be claimed

for the taxpayer and spouse. • Each personal exemption reduces

the income that is subject to tax by the exemption amount.

• Dependency Exemptions• Children

Standard & Itemized Standard & Itemized DeductionsDeductions• The standard deduction is based

on filing status• 2009 Standard Deduction Single

$5,700 • Head of household $8,350 • Married filing a joint return $11,400

• Some taxpayers will itemize deductions.• When itemized deductions are

greater than the standard deduction