Taxes: intro

Taxes - a sum of money demanded by a government to support the government itself as well as specific facilities or services

Paid by taxpayers - a person who pays a tax to national, state, county or municipal (city/town) governments

What taxes fund

● Roads
● Libraries
● Military
● Schools
● Police and fire departments
● parks/trails

Taxes and money management

● Taxes pay a role in both earning and spending
● One of the largest expenses for many people

Federal budget

● Balanced budget: what the government collects the same in revenue (taxes) as it spends.
● National Debt: the total amount of money that the government has borrowed. Deficit increases it & surplus decreases it!

● Budget surplus: when the government takes in more revenue than it spends
● Budget Deficit: when the government spends more money than it takes in

Discretionary spending
● Spending category where the government can choose how to fund.
○ Defense #1 Discretionary spending
Mandatory spending
 ● Spending that is required by law.
○ Funding for entitlement programs like Social Security and medicaid

Impact of Taxes
● Types of taxes affect people differently, depending on their income. The 3 types of taxes are
○ Progressive Tax
■ Tax is designed to take a larger percentage of income from people who make more money.
■ Argument for: the wealthy can afford a higher tax and should pay more of the tax burden.
■ Argument against: why should the hardest working and most successful pay more taxes? The wealthy are
penalized for their success.
○ Regressive Tax
■ Tax which takes a higher percentage of income from people that make less money
● Ex. Sales tax & fees/licenses
■ Argument for: Tax levied on what is bought. If you cannot afford the tax, do not buy the item.
■ Argument against: tax harms those who can least afford it
○ Proportional Tax
■ A tax that takes the same percentage of income from the wealthy and poor.
■ Argument for: everyone is equal-pay the same % of income.
■ Argument against: The poor need their income more than the wealthy. They need every penny and cannot
afford as much of a tax as the wealthy
Type of tax Is it a tax Define this tax? & Who pays this tax? What government Extra Notes
on…Earn? Buy? How does it work programs does it
Own? fund?

Income Earned & unearned Earned and Everyone who -Operations of the People over 65 pay
income unearned income makes money Federal less on taxes
the higher the Government
Federal & income income the more -Government
tax tax is paid programs
-Education

Payroll earned Employers take Everyone who has -Social Security 7.65
money out of your a job -Medicare SS
paycheck for -6.2% of earned
benefits you will income
receive Medicare
-1.45%

Property own If you own a Everyone who Expenses of state

property like a owns land or a and local
house you have to house governments
pay to own that
property

Sales buy If you buy anything Everyone who buys The expense of $1.00 item charged
you have to pay a something state and local 6% sales tax =
% on that item governments $1.06

Excise buy Purchase of certain Anyone who buys Expenses of nation, Gas
items. Often these items state and local Alcohol
included in the pice governemnts cigaretts
“Pay-as-You-Earn” Taxation
● Federal income taxes are collected throughout the course of the year as individuals earn income
SETP 1: Tax withholding
● The process by which employers take tax payments out of an employee’s pay before he or she receives it. (W-4 Form)

W4
- Withholding form- how much money they should take out of wages

Fill out a W4 every time you start a new job

- Withholding - amount of federal income tax withheld from your paycheck

● Tax Returns:
- Step 2: At the end of the year, an employer gives employees a report showing how much they withheld in taxes. (W-2
Form)
- Step 3: Individuals file a tax return with information regarding exemptions and deductions that adjust the amount of tax
that should have been paid. (1040 Form)
- If you paid too much, you get a refund. if you paid too little, you much pay the balance.
- All tax returns must be filed by April 15”

W-2 = wages & taxes statement

- Contains your tax information for one job in one year
- You’ll receive one for each job you worked at during the year
- Must be mailed by January 31 or every year

1040 Form
- Income tax you must file with federal 7 state gov’t
- 1040 Form - Tax Return Form (How You File Income Tax With Federal Gov’t)

Tax Brackets
- The federal income tax is a progressive tax
If you are a child or dependent on someone you dont have to file taxes but you still can