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Tax for Teens…

Tax for Teens…. Vocab/Definitions WS. Lesson 1 Introduction. Note: All information is based on 2011 data. Did You Know. Nearly 1/3 all students work 40+ hours per week in summer ¼ work 35+ hours per week during the school year Average teen saves $1000 of summer wages. What’s the Problem?.

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Tax for Teens…

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  1. Tax for Teens… Vocab/Definitions WS

  2. Lesson 1Introduction Note: All information is based on 2011 data

  3. Did You Know • Nearly 1/3 all students work 40+ hours per week in summer • ¼ work 35+ hours per week during the school year • Average teen saves $1000 of summer wages

  4. What’s the Problem? • Teens don’t understand how TAX applies to them • Most forfeit a refund!!! Is this you???

  5. Objectives… • Basic Tax Law • Exemptions • Dependents • Withholdings • Payroll Taxes • Income • Deductions • When and How to File a Tax Return (We will focus on Federal Tax in this Unit)

  6. Lesson 2I’ve Got A Job!What’s an I-9 and a W-4?

  7. Form I-9 – Employment Eligibility Verification • Proves you aren’t an illegal alien • Penalty if not one on file for each employee • Keep 3 years after employee is gone • Acceptable documents used to prove citizenship: • Passport • Voter’s registration • School or military ID • Driver’s license • Social security card

  8. So What Is A W-4? • New employees fill out this form • Tells employers how much federal income tax to withhold from paycheck

  9. Filling Out the W-4 Correctly • If don’t fill out correctly: • Owe money when taxes are due April 15 • Could be taking out too much tax from paycheck • Lose potential interest

  10. A Few Key Terms You Need To Know • WITHHOLDING: • Represents money that an employer deducts from paycheck to pay all or part of employee’s taxes • However, depending how much you make for the rest of the calendar year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying

  11. Are you Exempt? • Exempt if: • Weren’t required to pay federal income tax last year • Don’t expect to this year either (made less than $5800) • If under 19 or a full-time student (or until 24 yr/full time) • If have to pay, will depend on if parents CAN claim you as a dependent • DEPENDENT: A person who relies on another taxpayer for at least half of his or her support (food, shelter, clothing, education, etc.) • If divorced • Custodial parent (has child 1 more day than other) • One makes more money

  12. Examples: • If you live with parents and under 19, you can be claimed as a dependent regardless of how much you make. • While your parents may not choose to claim you, test is whether they CAN. • If they can claim you and you are under 19, and expect to make under $5800 in the calendar year, you will likely NOT have to pay federal income tax. • Note: If you are at least 19 but under 24, parents can still claim you as a dependent as long as you are a FULL-TIME Student! Am I Exempt WS In-Class Am I Exempt WS

  13. I don’t qualify for exempt status – now what? • Need to fill out the personal allowances worksheet on the W-4 form! • The more exemptions (allowances) you claim, the less tax withheld from paycheck • Claim “0” will result in the largest amount of tax to be withheld Do: Pg. 6 then Fill out W4 WS

  14. What if I Make a Mistake? • Claim exempt and make more than $5800? • More than likely have to owe taxes! • If you don’t claim exempt (0 allowances) • More than likely break even or receive a refund!

  15. Lesson 3Where’s All The Money I Earned?

  16. Where’s All The Money I Earned? • Payroll Taxes • Collected from employers and employees to provide retirement benefits (social security, Medicare) • This amount is paid regardless of income earned • Will NOT get back until retirement

  17. The Paycheck Stub • Miscellaneous Information • Gross Income • Deductions • May get refund on Fed and State • No refund on SS or Medicare • Net Income

  18. P. 10 - verbal W4 qz/Am I Exempt QZ

  19. Lesson 4What’s This,More Forms?W-2s and 1099-INTs

  20. What? More Forms? • W-2 – will have 3 copies • Your records • Attach to state tax return • Attach to federal tax return • 1099-INT

  21. The W-2 • Must receive these by January 31st from your employer • Summarizes • How much you made during the year (Earned Income) • How much you paid in for taxes • Use to help fill out tax return • If error, see employer to fix

  22. 1099-INT • Receive this form from your bank • Shows interest earned for year • Remember: Interest is considered “unearned income” and may have to pay tax on it!

  23. W-2 and 1099-INT will help you to determine whether you are required to, or should, file a federal tax return!

  24. Lesson 5Am I Required to File a Tax Return?

  25. Am I Required to File a Tax Return (as a dependent)? • Due April 15! • Required? Depends… *Your income for the year *If parents can claim you, you must file if: 1.Your unearned income was over $950 2.Your earned income was over $5800 3.

  26. Am I Required to File a Tax Return? • John Garcia, 18, earned $4200 working at the local library and was paid $210 in interest from his bank savings account.

  27. Am I Required to File a Tax Return? • Jill Williams, 18, had two jobs during the past year. She worked as a waitress at La Fogata, where she earned $6800 and as a summer counselor, where she earned $2400. Jill also made $375 in interest. In-Class Do I Have to File Return WS Do I have to file return WS

  28. Lesson 6Should I File a Tax Return?

  29. Should I File a Tax Return? • Civic Duty to File • Voluntary Compliance • Government relies on people to: • Report their income • Calculate tax liability correctly • File on time

  30. To Pay or Not to Pay… • Why pay? • Government uses money to fund services • Ex: School • Penalty • Fine up to $25,000 • Imprisonment up to 1 year • Or Both! 1-6 Review

  31. Forms? • There are 3 forms you can choose from to file • 1040EZ – simplest to file • 1040A • 1040 – most lengthy to file

  32. Lesson 7How Do I File the 1040EZ?

  33. How Do I File the 1040EZ? • Must meet requirements to use EZ: • Single • Claim no dependents • Taxable income < $100,000 • No income other than wages, salaries, and tips (shown on W-2) • Up to $1500 taxable interest (shown on 1099INT)

  34. Filling out the 1040EZ • Terminology: • Adjusted Gross Income (AGI) • Sum of wages and taxable interest • Deduction • Amount tax payers may subtract from their AGI before tax is determined (reduction in income) • Taxable Income • Part of income you must pay taxes on • Credit • Direct reduction of taxed owed

  35. Sending in the Return • Photocopy the EZ form for record • Mail in W-2 & 1099 INT with return • Check if owe payable to “United States Treasury” Keep copies at least 5 years!

  36. Don’t Want to Pay? What could you have done differently? • If you don’t choose to pay, IRS will add 5% to what you owe for each month you don’t pay! • W-2 • Claimed “0” rather than exempt so take taxes out • Watch out for scam artists! 1040 EZ Prob WS

  37. Other Ways for Government to Collect Money • Income tax not only source • Social Insurance taxes and contributions (retirement and unemployment) • Excise tax (tax on gas, cigarettes, and alcohol) • Estate and gift tax • Customs duties (imports) • Other miscellaneous receipts

  38. Where Does Your Money GO? 1040 EZ quiz Chap 7 review

  39. Lesson 8How Do I File the 1040 Form?

  40. How Do I File 1040 Form? • File this form if: • Received dividends or capital gains from an investment • Received tips of $20 or more in any month that you didn’t report • Box 8 of W-2 shows tips allocated • Earned income from your own business • Won money in lottery or raffle • Received non-employee compensation • Social Security pension

  41. Preliminaries Matter • Be sure to have: • 1099 Dividends & Distributions form • Any records of receipts • Ex: E-Bay, lottery, drawings

  42. Filing Status and Exemptions • Filing status affects amount tax paid • Exemptions • $3700 each exemption may be subtracted from adjusted gross income • Exemptions help reduce taxable income! • But you probably won’t qualify • More than likely, parents can claim you

  43. What is Income? • Income: “all income from whatever source derived” • Types of Compensations for Services: • Fees • Commissions • Prizes and awards • Fringe benefits • Tickets, clothing given to you by employer instead of money

  44. Other Income Continued… • Income derived from business • Deductible expenses • Must be “ordinary and necessary” • Interest and Dividends • Earnings/Profits to persons who own stock • Considered taxable income • Capital Gains and Losses • Capital gain: profit from the sale or exchange of investment • Short Term • Long Term • Reported on 1099-DIV

  45. Exclusions From Income • Certain economic benefits don’t have to count as income = exclusions from income • Gifts • Must see Dominant Reason was out of affection, respect, admiration, charity • Ex: transfer of property • Inheritances • Scholarships • May be excluded from income if used to pay tuition/course related fees • De Minimis Fringe Benefits • Ex: Store’s photocopier, company coffee, telephone • Ebay winnings (pg 41) Do pg 42 WB

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