Taxes Notes
Why do we pay Taxes? Give some Paying for governmental operations,
Examples facilities, and services is the primary
purpose of taxes. The government
provides goods and services that
benefit the public.
(Ex. fire and police protection, schools,
highways, airports, parks, & the
military)
Where does the government get most Taxation is the primary source of
of its money? revenue for the federal government
What is Deficit spending? When the government spends more
than it collects in taxes. Increases
national debt
What is Mandatory Spending? Mandatory Expenditures that Cogress
legislated into law
Examples of Mandatory Spending Social security, Medicare, Medicaid,
(Hint: Look at the Infographic) Food & Agriculture, Transportation,
and Veterans Benefits
What is Discretionary Spending? The portion of the budget that
Congress spends through annual
appropriations
Who decides what gets spent in Congress
Discretionary Spending?
What are some of the categories of Energy & Environment, Social
Discretionary Spending?(Hint:look at Security, Medicare & Health, Housing,
the infographic) Government, Veteran Benefits,
Education, Military, Transportation,
Science, and International Affairs
What type of taxes make up a large Total Property Taxes
portion of state and local tax revenues
What are State and Local Taxes used They are mainly used to pay for public
for? education, highways, and public
assistance programs
Personal Income Tax Required of all workers, regardless of
employment status
Sales Tax o=commonly used by states & local
governments to raise revenue
Excise/Sin Tax Imposed to discourage people from
consuming certain products (Ex.
Tobacco) Also levied against luxury
goods
Property Taxes Levied against real estate or personal
property
Inheritance/Estate taxes Paid on the transfer of assets from a
deceased person to his heirs
Capital Gains Taxes Imposed taxes on profits made from
investments & the sae=le of real
estate
What is a Direct Tax? Give an Paid directly to the government by the
example taxpayer. Personal income tax is an
example of a direct tax
What is an Indirect Tax? Example. A tax levied on one person or entity
but is shifted to or paid by another
(Ex. Sales Tax)
What is a Progressive Tax? Imposes a higher tax rate on those
with higher incomes
(Ex. Income tax)
What is a Regressive Tax? Has the effect of imposing a higher tax
rate on those with lower incomes
What is a Proportional Tax? Imposes the same tax rate on
everyone regardless of income or
ability to pay—also called a flat tax
(Ex. Sales tax)
What Benefits does Social Security - Retirement benefits: workers
Provide? become eligible at 67
- Disability payments: workers
who become disabled before
retirement age
- Survivor’s benefits: if a worker
died, benefits may be paid to
certain members of the family
- Divorced person;s benefits: a
former spouse can be eligible
for benefit on a worker’s record
under certain circumstances
Income Notes
Define Wages? Payment for work that is usually
calculated on an hourly, daily or
piecework basis
What is Piecework? A wage based on a rate per unit
worked completed. Must add up to
minimum wage
How are overtime wages calculated? Eligible workers who put in over 40
hours must receive overtime pay at
least 1.5 times their regular hourly rate
What is a salary? A fixed payment for work and
expressed as an annual figure. It is
paid in periodic equal payments
What is commission? How is Income paid as a percentage of sales
commission paid? made by a salesperson.
For a person working on commission,
making more sales means income
goes up
What is a tip/gratuity? Money paid for service beyond what is
required.
What is the common % for a tip? Between 15-20% of the check
What is a bonus? Money added to an employee’s base
pay. Usually a reward for performance
or a share of profits
Self-Employment Income The form of income earned by the self
employed is called profit.
What is the Gig Economy? A flexible market that allows you to
work short-term independent jobs
Earned Income Money you earn from working
Unearned Income Money you earn but you didn;t have to
work for it
Examples of unearned income - Retirement accounts
- Inheritances
- Gifts
- Lottery winnings
- Veteran’s benefits
- Welfare benefits
- Property income
What are Employee Benefits/Fringe A form of non cash compensation
Benefits? receives in addition to a wage or
salary
(Ex. health, dental, & vision insurance,
retirement plan, sick leave, vacation
time, flexible work schedule, childcare,
profit sharing, continuing education)
What is Personal Leave? Time off work that employees can use
for personal reasons
What is Family Leave? Time off work for certain life events.
These may include the birth/adoption
of a child, caring for a sick family
member, or other family related
emergencies.
What is Flextime? A policy allowing employees to adjust
work schedules to better match
personal schedules
What is Job Sharing? An arrangement where two part time
employees handle the responsibilities
of a full time position
What is Telecommuting ? An arrangement where employees
work away from the business site
What is a dependant? Someone you support for food,
shelter, clothing
What requirements must dependants 1. Dependent can have their own
meet? tax returns but they must not
have filed a joint tax return for
the year unless it’s just to claims
refund
2. Must be a U.S. citizen, U.S.
national, resident alien, or a
resident of Canada or Mexico
3. Must have a taxpayer
identification number (usually a
SSN
You must file a tax return if you make - If earned income was more than
at least how much in income? $14,600
- If unearned income was more
than $1,300
- If gross income was more than:
$1,300 or earned income +
$450
What is taxable income? The amount on which taxes are
calculated (amount can be adjusted)
What is an Itemized deduction? An expense that can be deducted from
adjusted gross income
(Ex. interest on home loans, taxes
paid on the value of the house, state
incomes taxes paid, and contributions
to recognized charities)
What is a tax deduction? An amount that is subtracted from the
adjusted gross income which further
lowers taxable income
What is a standard deduction? A fixed amount that may be deducted
from adjusted gross income. This
amount is set by law
What is an exemption? An amount that a taxpayer can claim
for each person who is dependent on
that person’s income
What is a Dependent Exemption? Those claimed for children
What is a Tax Liability? The amount of total tax owed on
income for this year. The amount is
found by using the tax tables provided
by IRS
What is a Tax Credit? An amount that is subtracted from the
taxes an individual owes. Tax credit
provide a greater advantage than
exemptions
What is a Single filing status? An individual who are unmarried at the
end of the year
What does married filing jointly mean? For couple who are legally married on
the last day of the tax year
What does married filing separately For legally married couple who choose
mean? to file separate returns
Who is the Head of Household? For individuals who are unmarried at
the end of the year and have at least
one dependent child or relative
What is a Qualifying Widow/Widower A special status for an individual with a
with dependent children? dependent child whose spouse has
died
What is a W-4 form? When do you fill You fill this out when you get a job.
it out? Helps the employer determine how
much income tax to withhold from an
employee’s paycheck
What is a W-2 form and when do you A wage and tax statement that shows
get it? an individual's learning and the
amounts of taxes withheld from the
earned income during the current year.
This statement should be mailed to
your home by Jan 31st
What is the W-2 used for? To show earnings and the amounts of
taxes withheld from the earned income
during the current year
What is a 1040 form? The standard U.S individual tax return
form that taxpayers use to file their
annual income tax returns with the IRS
What is an audit? A review of financial records and
statements to make sure the
information is accurate as reported
