Understanding Taxes. and understanding your paycheck!

Transcription

1 Understanding Taxes and understanding your paycheck!

2 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. Objectives

3 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. Key Terms

4 Hired by a business or an employer You are self-employed Primary Sources of Employment

5 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 Salary vs. Hourly Wage

6 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

7 Gross income: Amount of money earned before payroll taxes Deductions Net income take home pay Mandatory Optional Payroll Deductions

8 Income Payroll Property Sales Excise Withheld from wages Paid at the time of purchase INCOME Federal Income Tax State Income Tax Payroll Social Security Medicare Insurance Retirement Taxes - Overview

9 Why do we pay taxes?

10

11 The IRS is the U.S. government agency responsible for tax collection and tax law enforcement. Internal Revenue Service (IRS)

12 Personal and dependent exemptions for yourself and qualifying family members reduce the amount of income on which you will be taxed. Exemptions and Deductions

13 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. W-4 (Federal)

14 W-4 (Federal)

15 W-4 (Federal)

16 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

17 What should you claim? Give it a try! W-4 (Federal)

18 Iowa Tax Withholding W-4 (Iowa)

19 Pay Period: The length of time for which an employee earns wages Reading Your Paystub

20 Gross Income: The total amount of money earned before payroll withholdings Reading Your Paystub

21 Payroll Deductions: Items deducted from gross pay. Typically around 30%. Typically include: Federal withholding State withholding FICA Reading Your Paystub

22 Deductions this pay period Accumulated deductions for the year Reading Your Paystub

23 Net Income: The check amount that is often referred to as the take home pay. Reading Your Paystub

24 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. W-2 (Federal)

25 W-2 (Federal)

26 Example

27 understanding-your-tax-forms-the-w-2/#687ff7af4756 Confused about the W-2?

28 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! 1099 (Federal)

29 1099 (Federal)

30 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. 1040EZ / 1040A / 1040 (Federal)

31 Return Let s try to together! Income: $40,000 Taxable Interest: $ EZ (Federal) Step-by-Step

32 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 IA (Iowa)

33 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+) How to File

34 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! What You Need!

35 Iowa Tax Table Federal Tax Table Resources