Unit 4- Paychecks & Taxes

Why does the government add excise taxes to purchases? Why are they controversial?

"Sin Taxes" to discourage people who buys stuff that is bad for you. Example: tabbaco, alchol, soda etc;

What does FICA stand for? What is the purpose?

(Federal Insurance Contribution Act) It provides money to the elderly.

Excise Tax

A sales tax fee only on specific market item

Public Goods

A service that is provided by the government without money to all people.

Property Tax

A tax fee on all real estate. Something a person pays for to make use of a specific public good.

Sales Tax

A tax most items that are bought. But not needed goods are not tax like food and clothing.

Progressive Tax

A tax that takes a larger percent of higher income, and a smaller percent of a lower income

Regressive Tax

A tax that takes a larger percent of lower income, and a smaller percent of higher income

What are major factors in gross pay?

Base wage, salary, overtime, tips, bonus, reimbursement, and commission

Why is the IRS often politically controversial?

Because how the money is spent on specific needs

What items in Minnesota are sales tax free? Why? What items aren't?

Because its what we need and so that's why the government doesn't want to tax it. They don't want to tax on what we need to live with.

Why do these terms (effective and marginal tax rates) frequently complicate political discussions?

Because marginal tax percentage is higher than effective tax rate percentage.

What is the difference between an effective and marginal tax rate?

Effective Tax rates the percentage of the overall of the income that you have paid for taxes. Marginal Tax is the percentage of the last money that you have paid for taxes.

Is FICA progressive, regressive, or proportional?

FICA is a proportional tax its paid at the same rate for all taxpayers.

1040/1040EZ

Federal income tax form

Describe examples of required and voluntary payroll deductions.

Federal income tax, state income tax, Medicare, social security, dental etc;

What is the difference between gross pay and net pay?

Gross Pay is the amount of money of income from your check before the money is taken out. Net Pay is the take home money that is the amount you get when you cash your check.

Audit

IRS examination of your tax records

Marginal Tax Rate

Is the percentage of your last dollar you pay in tax.

Gross Pay

It is the total amount of income from your check before money is taken out

W-4

Its filled out once you get a job. Government tells you how much you can keep for your paycheck.

M-1

Minnesota state income tax

Discretionary Income

Money left over after taxes have been paid off, so the money left over

Explain why the government consider interest a form of "income"?

Money that's earned

What type of items do property taxes pay for at the local level? Describe some specific local examples?

Public Service Building, Parks, Public Health, Transportation, Libraries etc;

Effective Tax Rate

Rates the percentage of your total income you pay in tax.

User Fee

Something a person pays for to make use of a specific public good. Example: park fee, toll road etc;

Net Pay

Take Home Money, its the amount you get when you cash the check

Income Tax (State and Federal)

Tax fee by the government directly onto your income

Estate Tax/Death Tax

Tax fee on the wealth passed on from one person to another at death.

Internal Revenue Service

Tax police that check to see if you have paid your taxes that need to be paid.

Deductions

The amount minus from check. Ex: taxes, medical, investment, invest, social security etc;

Explain the "max cap" for FICA. What is it purpose? What is the current rate?

The max cap for FICA is about $127,000, and the current rate is about 6.2%

Disposable Income

The money a person has lest after all the taxes on it has been paid off and living needs

Explain the different ways in which individuals earn an income (for example: hourly wage)

They can work at jobs like fast food restaurants or they can do non business jobs like babysitting or handwork

Why are taxes necessary?

To help the state pay for things like roads, buildings, schools etc; Things that are needed to help are state.

W-2

When the year ends, you get an earning summary from everything you worked for during the past years