Tax for Teens…

Tax for Teens 1

Vocab/Definitions WS

Did You Know? 

Average annual income for teens: $3,095.00



40% of teens currently save regularly



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

FYI: Amish pay tax on real estate and personal property and income tax on any earnings. They do not pay school tax, social security or Medicare tax.

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What’s the Problem? Teens

don’t understand how TAX applies to them

Most

forfeit a refund!!!

Is this you???

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

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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

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So What Is A W-4?  New

employees fill out this form  Tells employers how much federal income tax to withhold from paycheck

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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

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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 make for the year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying

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Can you put Exempt on your W4? 

You can put “Exempt” if: 1. 2. 3. 4.

Weren’t required to pay federal income tax last year Don’t expect to this year either (made less than $6100 {std deduction - base amount of income that is not taxed}) If under 19 or a full-time student (or until 24 yr/full time) CAN parent(s) claim you as a dependent? 



Mind map

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

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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 $6100 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!

In-Class Am I Exempt WS

Am I Exempt WS

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See pg 347-48 acct text

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 _____ tax withheld from paycheck 

Claim “____” will result in the largest amount of tax to be withheld

TAX TABLE Fill out W4 with workbook

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What if I Make a Mistake?  Claim

exempt and make more than $6100?  More

 If

than likely have to owe taxes!

you don’t claim exempt (0 allowances)

 More

than likely break even or receive a refund!

W4 ws

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Where’s All The Money I Earned?

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Where’s All The Money I Earned?  Payroll

Taxes

 Federal

and State

 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

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The Paycheck Stub  Miscellaneous  Gross

Information

Income

 Deductions  May  No  Net

get refund on Fed and State

refund on SS or Medicare

Income

W4 qz/Am I Exempt QZ

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What’s This, More Forms? W-2s and 1099-INTs

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The W-2  Must

receive these by January 31st from your employer

 Summarizes  How

much you made during the year

 How

much you paid in for taxes

(Earned Income)

 Use  If

to help fill out tax return

error, see employer to fix

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W-2 continued W-2

– will have 3 copies

Your

records

Attach

to state tax return

Attach

to federal tax return

Fill out w wb

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1099-INT Receive Shows

this form from your bank

interest earned for year

Remember:

Interest is considered “unearned income” and may have to pay tax on it!

Fill out w wb

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Am I Required to File a Tax Return? http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

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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 $1000 2.Your earned income was over $6100

OR if… 3.

Filing Requirement Worksheet for Most Dependents

1.

Enter dependent's earned income plus $350

2. Minimum amount 3.

$1000

Compare lines 1 and 2. Enter larger amt (Adjusted Earned Income)

4. Maximum Amount

5.

Compare lines 3 and 4. Enter the smaller amount

6.

Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return.

$6100.00

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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.

Filing Requirement Worksheet for Most Dependents

1. Enter dependent's earned income plus $350

2. Minimum amount

$1000

3. Compare lines 1 and 2. Enter larger amt (Adjusted Earned Income) 4. Maximum Amount

5. Compare lines 3 and 4. Enter the smaller amount

6.

Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return.

$6100.00

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http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

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.

Filing Requirement Worksheet for Most Dependents

1. Enter dependent's earned income plus $350

2. Minimum amount

$1000

3. Compare lines 1 and 2. Enter larger amt (Adjusted Earned Income) 4. Maximum Amount

5.

6.

$6100.00

Compare lines 3 and 4. Enter the smaller amount

Enter the dependent’s gross total income. If line 6 is more than line 5, the dependent MUST FILE an income tax return.

Do I have to file return WS

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Should I File a Tax Return?

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Humm, should I file? Civic

Duty to File

Voluntary

Compliance

Government Report

their income

Calculate File

relies on people to:

tax liability correctly

on time

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To Pay or Not to Pay…  Why

pay?

 Government  Ex:

uses money to fund services

School

 Penalty  Fine

up to $25,000

 Imprisonment  Or

1-6 Review

up to 1 year

Both! Do I have to file return QUIZ

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Forms? 1040EZ 1040

– simplest to file

– most lengthy to file

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How Do I File the 1040EZ?

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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)

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Filling out the 1040EZ  Terminology:  Adjusted  Sum

Gross Income (AGI)

of wages and taxable interest

 Deduction  Amount

tax payers may subtract from their AGI before tax is determined (reduction in income)

 Taxable  Part

Income

of income you must pay taxes on

 Credit  Direct

reduction of taxed owed

Fill out 1040EZ wb

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Sending in the Return  Photocopy  Mail  If

the EZ form for record

in W-2 & 1099 INT with return

owe

 payable

to “United States Treasury”

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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 1040 EZ Prob WS

out for scam artists!

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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  Other

duties (imports)

miscellaneous receipts

Where Does Your Money GO? Year 2012 – in billions of dollars National Defense

% of debt

689 Billion

19%

Social Security

773

22%

Healthcare (Medicare,

732

21%

220

6%

67,249 million

2%

Medicaid, child health ins program)

Interest on National Debt Education Chap 7 review

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1040 EZ quiz

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What is the 1040 Form?

File 1040 Form?  File

this form if:



Received dividends or capital gains from an investment (1099 DIV) 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



Farm

    



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Filing Status and Exemptions  Filing

status affects amount tax paid  Exemptions  

$3800 - each exemption may be subtracted from adjusted gross income Exemptions help to reduce taxable income

 But

you won’t qualify bc parents can claim you

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What is Income?  Income:

“all income from whatever source derived”  Earned

Income

 Unearned

Income

 Miscellaneous

Income

Use to report “other income” Ex: • Commissions • Fringe Benefits • Laker tickets • Clothing • Income from outside business • Web page • Cash prizes won • Raffle • Lottery • Capital Gains • Interest/Dividends

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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 



De Minimis Fringe Benefits 



May be excluded from income if used to pay tuition/course related fees Ex: Store’s photocopier, company coffee, telephone

Ebay winnings (pg 41) Do pg 42 WB

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Standard & Itemized Deductions (both help to reduce taxable income)

YOU DECIDE

Standard Deduction: Base amount of income that is not taxed Income: $6100 (sgl indiv person)

1.

Allowed to deduct this amt from your income before taxes

a.

Itemized Deduction:

2.

a. b. c. d. e.

f. g.

State and Local Taxes Gifts to Charity Job Expenses – mileage? Travel Uniforms Education – if maintain or improve skills and/or meet requirements of employer Other: tools, supplies for job, professional journals, protective clothing

You will take the larger amount of the two!

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Credit A

direct reduction of tax owed

 Credit

actually deducted from the amount of tax you owe (dollar for dollar)  Child

Care Expenses

 Elderly

or Disabled

 Adoption  Buying

Expenses

new electric car

 Education

expenses

Payment or Refund? Payment: Due

April 15

Refund: Check Direct

Deposit 48

Chap 8 Review