chapter 23 taxes and social securitysucceeding in the the world of work 23.1 all about taxes section...

Chapter 23 • Taxes and Social Security Succeeding in the the World of Work

23.1 All About TaxesAll About Taxes

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Section 23.1Section 23.1All About TaxesAll About Taxes

Chapter 23 • Taxes and Social Security Succeeding in the World of Work


Understanding the tax system will Understanding the tax system will help you understand where your help you understand where your money goes, and why.money goes, and why.

WHY IT’S IMPORTANT



Understanding TaxesUnderstanding Taxes Understanding TaxesUnderstanding Taxes

TaxesTaxes are payments that you make to are payments that you make to the government to support the the government to support the government and to pay for government government and to pay for government services.services.




The three levels of government are:The three levels of government are:

federal (the whole country),federal (the whole country),

state (the 50 states), andstate (the 50 states), and

local (counties, cities, and towns).local (counties, cities, and towns).




TheThe Internal Revenue Service (IRS) Internal Revenue Service (IRS) is is the government agency that collects the government agency that collects federal taxes and oversees the federal federal taxes and oversees the federal tax system.tax system.




Tax forms can be completed on the IRS Tax forms can be completed on the IRS Web site and then submitted to the IRS.Web site and then submitted to the IRS.

Taxes paid to the IRS go into the U.S. Taxes paid to the IRS go into the U.S. Treasury.Treasury.



Income TaxesIncome TaxesIncome TaxesIncome Taxes

You pay income tax on your income.You pay income tax on your income.

Your income may come from your job, Your income may come from your job, interest your bank pays you on your interest your bank pays you on your savings, or from profits you make from savings, or from profits you make from selling real estate.selling real estate.




Income is calculated as a percentage of Income is calculated as a percentage of the taxable income you earn.the taxable income you earn.

Taxable incomeTaxable income is your income after you is your income after you subtract certain permitted amounts.subtract certain permitted amounts.




Currently, the federal income tax ranges Currently, the federal income tax ranges from 15 to 39.6 percent.from 15 to 39.6 percent.

The higher your income, the higher the The higher your income, the higher the rate of income tax you must pay.rate of income tax you must pay.




To To wwithholdithhold is to deduct, as money from is to deduct, as money from a paycheck.a paycheck.

Your employer will withhold money from Your employer will withhold money from your paycheck to pay income tax due on your paycheck to pay income tax due on your wages.your wages.




In most states, people also pay state In most states, people also pay state income tax.income tax.

Many cities also have income taxes.Many cities also have income taxes.




If you are self-employed, you are If you are self-employed, you are responsible for withholding your own responsible for withholding your own taxes.taxes.




The IRS requires self-employed people The IRS requires self-employed people to pay income taxes quarterly (four times to pay income taxes quarterly (four times a year) based on the income they a year) based on the income they estimate they will make that year.estimate they will make that year.



Social Security TaxesSocial Security TaxesSocial Security TaxesSocial Security Taxes

Workers pay Social Security taxes so Workers pay Social Security taxes so that they can receive benefits when that they can receive benefits when they retire.they retire.

Social Security taxes are figured as a Social Security taxes are figured as a percentage of the money you earn.percentage of the money you earn.



Social Security TaxesSocial Security TaxesSocial Security TaxesSocial Security Taxes

Your paycheck stub shows the money Your paycheck stub shows the money withheld in a box labeled “FICA.”withheld in a box labeled “FICA.”

FICA stands for Federal Insurance FICA stands for Federal Insurance Contribution Act, or “Social Security.”Contribution Act, or “Social Security.”



Sales TaxSales TaxSales TaxSales Tax

Sales tax is calculated as a percentage Sales tax is calculated as a percentage of the price of an item.of the price of an item.

Sales tax rates vary from state to state.Sales tax rates vary from state to state.

Local sales taxes may also be added to Local sales taxes may also be added to the cost of items you purchase.the cost of items you purchase.



Property TaxesProperty TaxesProperty TaxesProperty Taxes

Property taxes are based on the value of Property taxes are based on the value of propertyproperty—generally land and buildings.—generally land and buildings.

Property taxes are the main source of Property taxes are the main source of money for local governments.money for local governments.



Where Do Your Tax Dollars Go?Where Do Your Tax Dollars Go? Where Do Your Tax Dollars Go?Where Do Your Tax Dollars Go?

Some places where taxes go are:Some places where taxes go are:

EducationEducationTransportationTransportationSafetySafetyHealthHealthMilitary ServicesMilitary ServicesPostal ServicesPostal Services



It’s Your ResponsibilityIt’s Your Responsibility It’s Your ResponsibilityIt’s Your Responsibility

We all have to split the bill for the We all have to split the bill for the services the government provides.services the government provides.

Since we all share the benefits, we Since we all share the benefits, we should all contribute our fair share of should all contribute our fair share of taxes.taxes.




Some people disagree on what’s fair.Some people disagree on what’s fair.

Some people think that high-income Some people think that high-income people should pay a larger share of their people should pay a larger share of their income than low- or middle-income income than low- or middle-income people.people.




You can influence how federal, state, You can influence how federal, state, and local governments spend tax and local governments spend tax money.money.

You can also influence tax laws.You can also influence tax laws.

How? By voting.How? By voting.



Understanding Federal Understanding Federal Income Tax ReturnsIncome Tax Returns


An An income tax returnincome tax return is a form that is a form that shows how much income a person shows how much income a person received from working and other sources received from working and other sources and how much tax that person must pay.and how much tax that person must pay.





If your employer withheld more money If your employer withheld more money from your paychecks than you owe, from your paychecks than you owe, you’ll get a tax refund.you’ll get a tax refund.

If your employer didn’t withhold enough, If your employer didn’t withhold enough, you will have to pay the difference.you will have to pay the difference.



Your employer calculates how much Your employer calculates how much money to withhold using the information money to withhold using the information you provide on a Form W-4.you provide on a Form W-4.

Form W-4Form W-4 Form W-4Form W-4




To complete Form W-4:To complete Form W-4:

Fill in your name, address, and Social Fill in your name, address, and Social Security number.Security number.Indicate whether you are married or Indicate whether you are married or single.single.

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Write the number of allowances, or Write the number of allowances, or deductions, you are allowed to claim. deductions, you are allowed to claim. The higher the number, the less tax The higher the number, the less tax withheld.withheld.Indicate whether you are Indicate whether you are exemptexempt——excused—from having to pay tax.excused—from having to pay tax.Sign and date the form.Sign and date the form.



How Do You File a Return?How Do You File a Return? How Do You File a Return?How Do You File a Return?

Generally, if you’re single and earn at Generally, if you’re single and earn at least $6,400 in a calendar year, you least $6,400 in a calendar year, you must file an income tax return.must file an income tax return.

Chapter 23 • Taxes and Social Security Succeeding in the the World of Work


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