WHAT YOU WILL LEARN
Taxes and the Government – how and
Where does the government get it’s money?
How does the government spend it’s money?
Taxes and Your Paycheck
What are they taking all of that money out
How to File a Tax Return
Taxes: The Fundamentals
What are the three levels of
government that collect taxes?
Three levels of Government
Federal Government - runs the country as a
whole and makes laws that affect everyone in
State Governments - runs the state you live in
and makes laws affecting the people in your
Local Governments - county, city, or town -
runs your local area and makes laws affecting
the people in your area.
How did it all get started?
“No Taxation without
1781: Constitution – Only state
governments had power to tax -
they turned over their $ to Fed. Gov
1788: Constitution ratified – Fed
given power to tax
1. Tariffs – taxes on
2. Excise taxes – tax
on the sale or use of
1791: First American Direct tax – 7 cents per gallon
to people who made and sold whiskey to raise
Money to pay debts incurred from revolutionary war.
1794: Whiskey Rebellion
rebelled and refused to
pay tax. Tax collectors
tarred and feathered –
1794 – Home of
Inspector of Revenue
burned down – friend of
Pres. George and militia
of 13,000 squashed the
Civil War Income tax
Direct tax on income
needed pay debts incurred
by the civil war.
First ever direct tax on
income in U.S.
1913: 16th Amendment
Early 1900’s industrialization
and modernization – a lot of
people making a lot of money.
New machines, inventions –
US became a world power with
Immigration – 25 million new
16th Amendment gave Fed.
Gov power to tax individual
and corporate incomes.
Income tax rates
1935 Wealth tax
increased tax rates
wealthy people to pay
for FDR’s New Deal.
1942 – Victory Tax
First tax on every individual in the United
States – 5% of income.
Due to many avoiding payment of taxes
the first system of withholding was
Workers in 1943 were the first to have
taxes withheld from their paychecks
Bringing us to present day
In our economy, not everyone can work
or does work.
BUT - these people are still consumers and
need to have an income / necessities of life.
At a minimum they must get food, clothing,
shelter, and health care. How can they do
Government helps though welfare, SS, and
Where does the Government get this
We need to pay the people who perform
the public services.
List all the taxes that we
#1 Federal Income Tax – #1 Social security / medicare
personal Social programs
Social security / medicare (unemployment, welfare, assisted
housing, food stamps, medicare)
Corporate income tax Defense / veterans / foreign
Borrowing (gov. bonds, affairs
foreign countries) Physical, human and
Excise / customs / gift / community development
estate (transportation, education, NASA,
Dept. of labor, interstate
miscellaneous highways, Environment)
Interest on national debt (9%)
Law enforcement (CIA, FBI,
State / Local governments
#1 Property Tax Social services (welfare, park and rec,
General Sales tax Law enforcement / fire / prison
Individual income tax Transportation
Corporate income tax Recycling
Excise tax (fuel, alcohol, Garbage
Local streets / intrastate highways,
Tolls / parking meters
Legal expenses (tickets,
How do we pay these taxes?
Income is withheld from your paycheck
to prepay you federal income tax and
social insurance taxes
Allowsthese taxes to be collected at a
steady rate rather than all at once
Easierfor us---spread out over the
Looking at Your Paycheck
Amount you earn before taxes are taken out!
The amount of income tax you pay is based
on your gross income for the year
Amount you earn after withholdings are
Provides the information your employer
needs to determine the proper amount to
withhold from your paycheck.
Number that reduces the amount of money
withheld from your pay.
The more allowances you claim, the smaller
the amount that is withheld
Suppose that you claim 5 when you should
only claim 1
You may only have $500 taken out over the
year, but you may end up owing $3000 all at
You are responsible if the information on
your W-4 is incorrect and causes your
withholding to be too small
IRS (Internal Revenue Service)
Collects income taxes
Filing a Tax Return
Tax Return: forms that taxpayers use to calculate their
Form W-2: summary of your earnings and
withholdings for the year for a job.
Form 1099-int: statement of the interest your bank
paid on your savings that year.
Form 1040EZ: tax form used by those that make
less than $50,000; interest less than $1500; no
dependents; under age 65.
Wages and Tax Statement
Totalof all paychecks for a year.
Summary of deductions
Must be sent by each of your employer’s by
Form 1099 INT
Money (interest) earned from a savings
account or by being self employed.
Interest Income is taxable.
If over $10 of interest is earned
1040 EZ (April 15th)
Use Form1040 EZ if you meet all of the
filing single or married filing jointly
claiming no dependents
gross income is less than $50,000
taxable interest less than $1500
do not claim student loan interest deduction
did not receive any advance earned income
do not owe any household employment taxes on
wages you paid to household employees
you are under age 65 and are not blind
Filing a Tax Return
Self-Employed: own business, lawn mowing,
baby-sitting, snow removal, etc…
Any amount above $400
The burden of paying taxes is left to the
Taxes can be filed on-line (over 40% are)
Will get refund faster