Personal Finance - Unit 1: Taxes

Pay Stub Practice: Julie Jones has just secured a job as a teller at the Guardian National Bank. Julie is paid once every two weeks. The pay period is April 1 - 14. Payday will be on May 1. Julie is on salary and earns $26,000 per year. She has medical benefits and a retirement package. Julie's paycheck deductions include: 6.2% Social Security, 1.45% Medicare, $122.05 Federal Withholding Tax, $42.27 State Withholding Tax, $42.00 Medical, and $80.00 401K. What amount will Ms. Jones receive on her paycheck?

$637.18

(Household/Self-Employed) Tax Questions: 1) Review the jobs listed below and determine whether you would be a "household employee" or "self-employed". A. Babysitter B. Selling Lemonade C. Designing Websites D. Gardening Neighbor's Yard E. Dog Walker 2) Stella is 16 years old. She earned $3,500 this year at a local ice cream shop, and another $3,500 in cash babysitting her neighbor's son. Does she need to file a tax return? Why or why not? 3) If Jose earns $1700 this year selling t-shirts he screenprints in his garage, what taxes would he need to pay?

1) A. Household Employee B. Self-Employed C. Self- Employee D. Household Employee E. Self-Employed 2) Stella does not need to file a tax return because she made a total of $7,000 this year, which is less than the standard deduction amount of $12,000. She is also a "household employee" as a babysitter, not a self- individual. 3) He would NOT need to pay Federal income tax because he earned less than $12,200. Jose would still need to pay 15.3% self-employment tax (for Social Security and Medicare) because he made over $400.

Pay Stub Practice: Joe works the same amount of hours each month. Joe worked 80 hours in the last pay period and he earns $12 per hour. 1) Joe's gross pay = _______ Calculate Joe's Social Security deduction, which is 6.2% of his gross pay. 2) Social Security Deduction = _______ Calculate Joe's Medicare deduction, which is 1.45% of his gross pay. 3) Medicare Deduction = _______ 4) Add all of Joe's deductions together to figure out the total amount taken out of each paycheck. Joe's deductions include the following: $ 84.00 - Federal withholding $ 38.00 - State withholding $ # Social Security (answer to #2) $ # Medicare deduction (answer to #3) $ 25.00 - Medical $ 40.00 - 401K TOTAL = 5) Subtract the total deductions from Joe's gross pay to determine his net pay. Net Pay = ________

1) $ 960 2) 59.52 3) $13.92 4) TOTAL = 260.44 5) $699.56

W-4 & Roth IRA Questions: 1) What is the benefit of claiming 0 or 1 withholding allowances on the W-4 form you receive when you start your job? 2) What two taxes will you NOT receive a refund for, even if you file a tax return? _____________________________________________ True or False questions: 1) The benefit of putting your money into a Roth IRA instead of spending it is that you are saving for your future. 2) You can put all of your earned income into a Roth IRA until it meets the contribution limit. 3) You have to be at least 18 years old to open a Roth IRA

1) Claiming 0 or 1 allowance(s) means that more money will be withheld from your paycheck. As a result, it is more likely that you will receive a tax refund when you file your taxes, and in the unlikely event that a teen owes taxes, it minimizes the sticker shock of having a large balance due. 2) You will not receive a refund for Social Security and Medicare taxes. _____________________________________________ 1) True 2) False 3) False; but it can depend on which bank you choose.

The Tax Cycle: Match the dates to their descriptions: (These dates are during the calendar year you are filing taxes for) 1) First day of the calendar year. Your earnings for the year begin on this date. 2) Complete a W-4, indicating how much in taxes you'd like withheld from each paycheck - You will complete a new W-4 for every job you hold in a year. - Some people (independent contractors for instance) will not receive a W-4 and are responsible for manually paying their taxes Complete an I-9, indicating you're eligible for employment in the United States 3) Last day of the calendar year. Your earnings for the year are final after this date. __________________________________________________ (These dates are during the calendar year AFTER the year you are filing for) 4) First day you can mail in federal and state paper form tax returns for the previous year, although you likely will not yet have your necessary W-2 or other documents to do the filing 5) Deadline for employers to mail W-2s to their employees (either by paper or electronically) - If you do not receive your W-2 by this date, contact your employer. - If you worked multiple jobs in a year, you will receive multiple W-2s. - The vast majority of people wait until after this date to file their taxes, since without a W-2 it is difficult to accurately determine your tax burden. 6)***Last day to e-file or mail federal and state income tax forms or to request an extension.*** 7) Deadline for filing federal and state income returns that have received extensions.

1) January 1st 2) Whenever you start a new job 3) December 31st 4) January 1st 5) January 31st 6) April 15th 7)October 15th

Tax Forms and Their Purpose: Match the tax forms with their descriptions. 1) - I am received in January - There is one of me for every job I work - You can tell how much you earned and how much you paid in taxes by reading me 2) - I am received in January - You get me if you are not an employee, but were paid by a company - You probably didn't get taxes withheld if you got me, so you may have a big tax bill coming up 3) - I am completed every April - Anyone can use me - Beware, there is a LOT to fill out 4) - I am received whenever you start a job - You list information about yourself and your family on me - I determine how much money gets taken out of each paycheck 5) - I am received whenever you start a job - You use me to prove that you are eligible to work in the U.S. - You must provide forms of identification when submitting me

1) W-2 2) 1099 3) 1040 4) W-4 5) I-9

____% of federal spending goes to THREE THINGS: 1: 2: 3:

66% 1) Social Security 2) Medicare/Medicaid/etc... 3)Defense

What is a W-4? If anyone had an extremely high refund amount or amount owed, how could they change their W-4 to spread their tax burden more evenly throughout the year? What if they plan to earn more? What is the overall goal at the end of the year?

A form that tells your employer how much federal tax to take out of your pay. They could increase (if they have an extremely high refund) or decrease (if they have an extremely high amount owed) their personal allowances. They could choose to keep their allowances close to the same. The goal is not to get a tax refund or owe tax at the end of the year.

Wage and Tip Income: Determine whether the income is taxable or nontaxable. 1) Wages earned by a worker at a casual fast-food restaurant: 2) Tips earned by a server in a fashionable restaurant: 3) Overtime pay earned by a construction worker for working extra hours to complete a project on time: 4) Bonus given to a salesperson for making the most sales during the month: 5) Free lawn care service for a month for a mailroom employee who developed a handbook for new employees 6) Unless specifically excluded, all wage, salary, and tip income are________.

All these incomes are taxable.

What is the term for: "Set amount deducted from gross pay for a specific purpose"

Allowance

What is the term for: "A cost, such as health insurance, paid in full or in part by an employer"

Benefit

What is the term for: "A percentage of profits paid by a business to the federal and state government"

Corporate Income Tax

What is the term for: "Relating to the time period covered by a particular paycheck"

Current

What is the term for: "Money taken from your paycheck to cover things like taxes and health insurance"

Deduction

What is the term for: "A tax on property (cash, real estate, stock, or other assets) transferred from deceased personas to their heirs"

Estate Tax

What is the term for: "A tax paid on purchases of a specific good, like gasoline"

Excise Tax

What does FICA stand for? What percent of these taxes go to: Social Security - Medicare -

Federal Insurance Contribution Act 6.2% 1.45%

What is the term for: "The amount of money you earn before taxes and other expenses are taken out"

Gross Pay

What is the term for: "Paid by employees to federal and state government. Collected or withheld from one's paycheck."

Income Tax

How Allowances Affect your Taxes: Complete the following sentences: "The more (more/fewer) withholding allowances I take, the more money I will receive in each paycheck." "The fewer (more/fewer) withholding allowances I take, the greater the likelihood I will owe taxes when I file my return. ______________________________________________________________ What is one pro and con for each course of action: Receiving more money in your paycheck - PRO: CON: Receiving a larger refund at the end of the year - PRO: CON:

More More ______________________________________________________________ PRO: You get to earn more money and choose what you do with it. CON: You might owe more money in taxes at the end of the year PRO: There really isn't a pro for receiving a larger refund. CON: The government gets a 0% interest when they use your money

What is the term for: "The amount of money you take home after taxes and other expenses are taken out"

Net Pay

Ways to File your Taxes: What some pros and cons for each method: Old-fashioned Paper Filing - PROs: CONs: Tax-preparation Software - PROs: CONs: Professional Tax Preparers PROs: CONs:

PROs: - You are in charge of everything CONs: - You will need to mail it to the IRS, which takes longer to file than those process electronically - It is easy to make errors and miss deductions PROs: - It is designed to help you receive as many possible tax deductions and credits - It has access to professional help - It has faster returns than paper-filing. CONs: - It would not be very helpful if you have difficult financial and monetary situations - It lacks a more personal "human touch" since everything is handled electronically. Even if you do seek professional help, you do not know these people very personally and will probably only receive some tips and advice. PROs: - They can handle more difficult financial situations, such as if you get married or divorced, bought or sold a house, inherited money, experienced a family death, or bank bankruptcy, and more. - It'll save you money and time since they are more educated on what benefits you can receive, and they can do your work for you. CONs: - You may "scam artists" who claim to be Professional Tax Preparers. - It may cost you a lot of money to hire them

What is the term for: "Federal and state taxes that all employers must pay, based on percentage of the employee's salary, They go to such things as Social Security and Medicare/Medicaid"

Payroll Taxes

What is the term for: "Gross Income before tax is calculate"

Pretax

What is the term for: "Wage, or amount of money you earn per unit of time, such as an hour or week"

Rate

Why do we pay taxes?

They pay for public services and government spending that help run our country.

Who must file a Tax Return: If you are d________, under the age of ___, and s_____, you must pay taxes if: - you earned more than $_______ - you receive an ________ income that is more than $_____ - your income was more than the larger of $1,050 or earned income up to $11,850 plus $_____ ______________________________________________________________________ If you are NOT a d________, under the age of ____, and s_____, you must pay taxes if: - you earn more than $______ _______________________________________________________________________ Regardless of dependence status: - You must pay taxes if your self-employed and earn more than $________ - Contributions to all of your traditional and Roth IRAs (individual Retirement Account) cannot exceed your taxable compensation, with a maximum of $________ per year for tax year 2019

dependent, 65, single $12,200 unearned, $1050 $350 ______________________________________________________________________ dependent, 65, single $12,000 ______________________________________________________________________ $400 $6,000

Practice Reading a Pay Stub Activity questions: (Flip for Link)

http://www.tv411.org/finance/earning-spending/reading-pay-stub/activity/2/1

What is the term for: "Money collected by the government to finance public expenses"

taxes

Unless specifically excluded, all _____, ________, ___________, and _______ are taxable. All ___ income is taxable and needs to be reported. _________ report wage and tax information on Form ___, Wage and Tax Statement. _________ use this form to complete their individual tax returns.

wages, salaries, commissions, and bonuses tip Employers, W-2 Employees