Pay Federal Income Taxes with Credit Card

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					                                 TAXES AND SPENDING

OBJECTIVE COMPETENCY: 004                 Explain the effect and importance of taxes.

OBJECTIVE: 4.01 Explain taxes on income.

I. CALCULATING GROSS EARNINGS

   A. Explain the importance of accurate payroll records.
   B. Explain how to calculate gross earnings.

II. PAYROLL DEDUCTIONS

   A. Explain why deductions are calculated and reported.
   B. Explain how to calculate deductions required by the federal government.
   C. Explain how to determine voluntary deductions.

III. PAYROLL RECORDS

   A. Explain the purpose of a payroll register
   B. Explain the purpose of an employee's earnings record.
   C. Explain how to prepare an employee's earnings record.

IV. EMPLOYER'S PAYROLL TAXES

   A. Explain how to calculate the employer's FICA taxes.
   B. Explain how to calculate federal and state unemployment taxes.

V. TAX LIABILITY PAYMENTS AND TAX REPORTS

   A. Explain how to pay payroll tax liabilities.
   B. Identify which tax reports are prepared and filed.

VI. PERSONAL ANNUAL INCOME TAX FILING AND VITA (VOLUNTEER
    INCOME TAX ASSISTANCE) TAX PROGRAM (OPTIONAL)

   A. Explain the history of federal income tax filing.
   B. Explain how to file personal income tax returns annually.
   C. How to start a VITA Taxation Program. See Best Practice Slide Presentation of
      Southwest High School.
                        IMPORTANCE OF PAYROLL RECORDS


 Payroll is a major expense for most companies and all records must be accurately maintained.

Key Terms:

          Payroll is a list of employees and the payments due to each one for a specific pay
period.

      Pay Period is the amount of time over which an employee is paid; such as weekly,
biweekly (every two weeks), semimonthly (twice a month), or monthly pay periods.

          Payroll Clerk is a person who is responsible for preparing the payroll. The payroll
clerk:
                   Makes sure employees are paid on time.
                   Makes sure each employee is paid the correct amount.
                   Completes payroll records.
                   Submits payroll reports.
                   Pays payroll taxes.

All payroll systems have certain tasks in common, as shown below:

THE PAYROLL SYSTEM
          Calculates earnings
          Calculates deductions
          Prepares payroll checks
          Reports payroll information to government
          Records earnings and deductions in payroll and accounting records.
                           CALCULATING GROSS EARNINGS

Key Terms:

       Gross Earnings is the total amount of money an employee earns in a pay period. The
calculation of gross earnings depends on the basis an employee is paid. An employee’s pay
can be based on:

                       Salary
                       Hourly wage
                       Commission
                       Salary plus commission or bonus
                       Overtime pay

      Salary is a fixed amount of money paid to an employee for each pay period. Example:
John Doe, an administrator, is paid a salary of $2,000 a month.

       Wage is an amount of money paid to an employee at a specified rate per hour worked.
The number of hours worked multiplied by the hourly wage equals the gross earnings for the
pay period.

      Electronic Badge Reader is an identification badge with a magnetic strip that contains
employee information used to record starting and ending work hours.

      Commission is an amount paid to an employee based on a percentage of the
employee’s sales.




       Overtime rate, set by the Fair Labor Standards Act of 1938, is
       21 1/2 (1.5) times the employee’s regular hourly pay rate.
         WHY DEDUCTIONS ARE CALCULATED AND REPORTED

                                       Key Terms

   Deduction is an amount that is subtracted from gross earnings.

   Deductions Required by Law:

   Federal Income Tax
   Social Security Tax

   State and Local Taxes

   Voluntary Deductions

       Federal Income Tax. Most people pay the federal government a tax based on their
       annual income. Employers are required to withhold a certain amount of money
       from each payroll check.

        Form W-4 is an employee's withholding allowance certificate that shows the
          number of allowances claimed for federal and state income taxes. The
          amount withheld for federal income taxes depends on three factors:

            1) The employee's marital status.
            2) The number of allowances claimed by the employee.
            3) The employee's gross earnings.

An employee who does not pay federal income tax can be "exempt" from withholding if he
or she:

               Did not have a federal income tax liability in the previous year.
               Expects no tax liability this year.
               Has income of $700 or less including nonwage income such as interest on
                 a savings account.
               Cannot be claimed as a dependent on someone else's tax return.

   If an employee writes "EXEMPT" ON form W-4, the employer will not withhold
   federal income taxes.

        Allowance reduces the amount of income tax to be withheld. The greater the
          number of allowances claimed by a taxpayer, the lower the amount of income
          tax withheld from earnings.

        Tax Table shows the amount of taxes to be withheld from employees each pay
          period based on their filing status, such as single, married, etc. A tax table for
          Single and Married Persons Weekly Payroll Period is included in this section..
Social Security Tax. Employers also collect social security taxes for the federal government.
The Federal Insurance Contributions Act (FICA) established the present social security system
in 1935. The FICA taxes finance programs that provide income to certain individuals:

The old age and disability insurance programs provide income to retired and disabled persons
and their dependent children.

The survivor's benefits program provides income to the spouse and dependent children of a
deceased worker.

The Medicare program provides health insurance benefits for the elderly.

State and Local Income Taxes. Most states and cities tax the earnings of the people who live
or work within their boundaries. In some states and cities, the tax rates are set as a percentage
of gross earnings, like social security taxes.

Voluntary Deductions. Most employers agree to deduct other amounts from their employees'
payroll check to accommodate the wishes of the employees. The employee must initiate the
request. Common voluntary deductions include:

                            Union dues
                            Health insurance payments
                            Life insurance payments
                            Pension and other retirement contributions (example: 401 (k)
                             plans, which are a personal employee retirement plan and all
                             earned income, are exempted from taxes.
                            Credit union deposits and payments
                            U. S. savings bonds
                            Charitable contributions
                                    PAYROLL RECORDS

                                          Key Terms:

Payroll register is a form that summarizes information about employees' earnings for each pay
period.

Net Pay is the amount left after total deductions are subtracted from gross earnings.

Direct Deposit is when the employer deposits the employee's check into his or her personal
banking account. No payroll check is prepared. The employee does, however, receive a
printed record of the payroll calculation. Direct deposits are made through electronic funds
transfer.

Employee's Earnings record is a record containing all of the payroll information related to an
employee.

Accumulated Earnings are the employee's year-to-date gross earnings, or the employee's
gross earnings from the beginning of the year through the end of each pay period. Example is
as shown below:

Businesses keep employee's earnings records on a quarterly basis. This makes it easier to
complete government reports that are required each quarter. At the end of a quarter, the
amount columns on each employee's earnings record are totaled. The final amount in the
Accumulated Earnings column is carried forward to the top of the employee's earnings record
for the next quarter.

Most large companies perform payroll functions with a computer. In a computerized payroll
system, the computer:




                      Performs all the payroll calculations
                      Prepares and prints the payroll register
                      Prints the payroll checks and stubs
                      Maintains the employee's earnings records
                           EMPLOYER'S PAYROLL TAXES

                                       Key Terms
Employer's FICA Taxes. Under the Federal Insurance Contribution Act, both the employee
and the employer pay FICA taxes. The current rate for social security is 6.2% and 1.45% for
Medicare tax. The employer and the employee pay social security tax on gross earnings up to
the maximum taxable limit per employee ($68,400 in 1998; $80,400 in 2001; and $84,900 in
2002). The employer and the employee pay Medicare tax on all gross earnings; there is no
maximum taxable limit.

Federal Unemployment Tax Acts (FUTA) and the State Unemployment Tax Act (SUTA)
requires employers to pay unemployment taxes. Unemployment taxes are based on a
percentage of the employees' gross earnings. Unemployment taxes are collected to provide
funds for workers who are temporarily unemployed. The employer pays both federal and state
unemployment taxes. The maximum federal unemployment tax is 6.2% on the first $7,000 of
an employee's annual wages. State unemployment tax rates and maximum taxable amounts
vary among states. Employers may deduct up to 5.4% of the state unemployment taxes from
federal unemployment taxes. Most employers, therefore, pay a federal tax of .8% (6.2%-5.4%)
of taxable gross earnings.

                              Paying the Payroll Tax Liabilities
     At regular intervals, payroll taxes and amounts withheld from employees are paid by the
     employer to government agencies. These items include:
                  1) FICA and employees' federal income taxes,
                  2) Employees' state income taxes,
                  3) Federal and state unemployment taxes

     Amounts voluntarily withheld from employees' earnings.

     FICA and Federal Income Taxes. One payment is made for:
                 Social security and Medicare taxes (both the employees' and the
                   employer's shares), and
                 Employees' federal income taxes withheld.

     State Income Taxes. At regular intervals, businesses pay the amounts withheld for state
     income taxes. Each state determines how and when the payments are made and what
     repots are filed.

    Federal Unemployment Taxes. Most businesses
    pay the federal unemployment or FUTA tax quarterly. If a
    business has accumulated federal unemployment taxes of less than
    $100 for the year, only one annual payment is necessary.

     State Unemployment Taxes. The requirements for paying state unemployment taxes vary
     from state to state. Usually state unemployment taxes are also paid on a quarterly basis.
                  TAX LIABILITY PAYMENTS AND TAX REPORTS

                                         Key Terms

Federal Tax Deposit Coupon (Form 8109) is a form prepared by the employer to send in
FICA and federal income taxes to the federal government.

Electronic Federal Tax Payment System (EFTPS) is a means of transferring federal taxes
electronically to the U. S. Government.

Form 940 is used to report the employer's unemployment (state and federal) taxes.

Form 941 is a form used by the employer to report quarterly taxes consisting of both FICA
and federal.

Form W2 is a form given to each employee at the end of the year and contains a summary of
the income you earned for the year and all amounts the employer withheld for taxes. These
amounts include federal, state, and local income taxes, and social security tax. Compare your
W2 to your paycheck stubs to be sure that the reported amounts are accurate. Your employee
will also send a copy of your Form W2 to the government.


              OBJECTIVE :            4.02 Explain taxes on goods and services.

 I. SALES TAXES

II. EXCISE TAXES

III. TARIFFS


       Average Major Income Taxes Imposed On Individuals In Selected Countries
                                    (In Percent)

                Sweden                                            56
                France                                            44
                New Zealand                                       39
                West Germany                                      38
                Britain                                           36
                Canada                                            35
                Greece                                            33
                Japan                                             31
                United States                                     30
                Turkey                                            29
                           TAXES ON GOODS AND SERVICES

Sales Taxes are taxes on a variety of goods and services collected at the time of the sale. They
are important to both state and local governments.

Progressive Tax is one in which the more a person earns, the greater the percentage of tax the
person pays.

Regressive Tax is one in which all people pay the same dollar amount, but the percentage of
the tax declines as the tax base rises.

General sales taxes have the following elements in common:
              They are easy to collect
              They are spread over time and many purchases
              They are generally accepted by consumers




                                EXEMPT FROM SALES TAXES

         Some states exempt necessities from the general sales tax to make the law less
 regressive. Food, clothing, rent, medical services, fuel, and other necessities make up the
 largest portion of a poor family's budget. If these items are exempted, the tax meets the
 test of ability to pay.

         The figure below shows the sources of state revenues. What is the largest single
 source of state revenues? How do the sources of state revenues differ from the sources of
 federal revenues?
       To look up the sales tax rate for the different states, go to The Sales Tax
       Clearinghouse which can be found at Internet Site:
       http://www.thestc.com/STRates.stm

                           TAXES ON GOODS AND SERVICES
                                  EXCISE TAXES

Excise Tax is a tax levied on specific commodities, such as tobacco, tires, or liquor.


               Excise taxes provide about 4 percent of federal revenues. They
               are levied on specific commodities, such as tobacco, automobile
               tires, and liquor. Like social security taxes, they appear to be
               proportional. However, if income is used as the tax base, they are
               regressive. Can you explain why?
                           TAXES ON GOODS AND SERVICES
                                     TARIFFS

Tariff is a tax on items coming into a country.

Quota is a limit on the quantity of a product that may enter a country.

                                               TARIFF
      The tariff raises the price of the items when they are sold. The higher prices reduce sales
   and thus restrict trade. For example:

      French farmers cannot produce chickens as cheaply as American farmers. Therefore, the
       French government places a tariff on American chickens. The tariff raises the price of
       American chickens high enough so that the French people will buy their own chickens.

      Assume that the United States government sets a tariff of 10 percent per pair of jeans
       made in Colombia, South America. If the jeans are valued at $30, the American customs
       department will collect a tax of $3 ($30 x .10), and the price per pair will rise to $33.



                    OBJECTIVE :            4.03 Explain taxes on property.

 I. PROPERTY TAXES

II. ESTATE AND INHERITANCE TAXES

III. GIFT TAXES


                                   TAXES ON PROPERTY
                                    PROPERTY TAXES



Property Tax is a tax on real estate or personal property; the largest source of revenue for most
local governments.

Personal Property Tax is a tax on such items as furniture, machinery, and equipment. In many
states there is a special property tax on raw materials used to make goods; on finished goods
available for sale.
The Figure below shows the sources of income for local governments. The largest source of
tax revenue for most local governments is the property tax. About 3 percent of local
government revenues come from miscellaneous sources. These include permits, municipal
businesses (such as utilities and liquor stores), parking meters, and fines. The general sales tax,
the tax on specific goods, and the interest on trust funds for employee pensions make up the
remaining revenue.
                                TAXES ON PROPERTY
                       ESTATE, INHERITANCE AND GIFT TAXES

Estate Tax is one levied by the federal government on property transferred from deceased
people to their heirs.

Inheritance tax is one paid by the heir who receives property from a deceased person's estate.

Gift Tax is one on a gift of money or property, to be paid by the giver, not the receiver, of the
gift.

Estate Tax. An estate must be worth more than a certain amount to be subject to this tax.
However, there is pressure to eliminate estate taxes altogether, and legislation has passed to that
effect. The estate tax is paid from the assets of the estate, before anything can be distributed to
heirs. An estate may have to sell property or investments in order to pay this tax.


Inheritance Tax. The difference between an estate tax and an inheritance tax lies in who pay
the tax. The estate tax is deducted from the value of the estate, but the heirs pay inheritance
taxes on property received. The amount of tax is based on the value of the property in the
estate.

Gift Tax. You can give up to $10,000 per person per year without having to pay a gift tax. For
gifts that exceed this amount, the gift tax rate is the same as the state tax rate. Gifts to your
spouse or to a charity are exempt from the gift tax. Also, gifts from a husband or a wife to a
third party are considered as having been made in equal amounts by each spouse. Therefore, a
husband and wife together may give as much as $20,000 per year to anyone, tax-free.
                            TAXES AND SPENDING TERMS

   1. Tax is the amount levied by the government on individuals and employers.
   2. Payroll is a list of employees and the payments due to each one for a specific pay
   period.
   3. Pay Period is the amount of time over which an employee is paid, such as weekly,
   biweekly, etc.
   4. Payroll clerk is a person who is responsible for preparing the payroll.
   5. Gross Earnings is the total amount of money an employee earns in a pay
           period.
   6. Salary is a fixed amount of money paid to an employee for each pay period.
   7. Wage is an amount of money paid to an employee at a specified rate per hour worked.
   8. Time Card is a record of the times an employee arrives and leaves work each
       day.
   9. Electronic Badge Reader is an identification badge with a magnetic strip that contains
   employee information used to record starting and ending work hours.
 10. Commission is an amount paid to an employee's based on a percentage of the
   employee's sales.
 11. Overtime Rate set by the Fair Labor Standards act of 1938, is 1 1/2 (1.5)
           times the employee's regular hourly pay rate.
 12. Deduction is an amount that is subtracted from gross earnings.
 13. Employee's Withholding Allowance Certificate (Form W-4) is an employee's
   withholding allowance certificate that shows the number of allowances claimed for federal
   and state income taxes.
 14. Employer's Federal Tax Table (Tax Table) shows the amount of taxes to be withheld
   from employees each pay period based on their filing status, such as single, married, etc.
 15. Federal Income Tax is a tax levied by the federal government and withheld from your
   pay each pay period.
 16. State Income Tax is a tax levied by state government and withheld from your pay each
   pay period.
 17. Social Security Tax (FICA) is a tax levied against employees and is withheld from your
   pay each pay period. These funds are used primarily to fund the old age and disability
   insurance programs, survivor's benefits program and Medicare program.
18. Medicare Tax a tax levied by the federal government to fund health insurance benefits for
the elderly.
19. 401 (K) Plan is a personal employee retirement plan, which is exempted from taxes on
earnings.
20. Payroll Register is a form that summarizes information about employees’ earnings for
each pay period.
21. Net pay is the amount left after total deductions are subtracted from gross earnings.
22. Direct Deposit is when the employer deposits the employee's check into his or her
personal banking account.
23. Employee's Earnings is a record containing all of the payroll information related to an
employee.
24. Accumulated Earnings are the employee's year-to-date gross earnings, or the employee’s
gross earnings from the beginning of the year through the end of each pay period.
25. Form W2 is a form given to each employee at the end of the year and contains a summary
of the income you earned for the year and all amounts the employer withheld for taxes.
26. Federal Unemployment Tax Acts (FUTA) Or State Unemployment Tax Act (SUTA) is
a percentage of employees' gross earnings paid by employers for unemployment.
27. Federal Tax Deposit Coupon (Form 8109) is a form prepared by the employer to send in
FICA and federal income taxes to the federal government.
28. Electronic Federal Tax Payment System (EFTPS) is a means of transferring federal
taxes electronically to the U. S. Government.
29. Form 940 is used to report the employer's unemployment (state and federal) taxes.
30. Form 941 is a form used by the employer to report quarterly taxes consisting of both FICA
and federal.
31. Sales Taxes are taxes levied on a variety of goods and services collected at the time of the
sale.
32. Progressive Tax is one which the more a person earns, the greater the percentage of tax
the person pays.
33. Regressive Tax is one which all people pay the same dollar amount, but the percentage of
the tax declines as the tax base rises.
34. Excise Tax is levied on specific commodities, such as tobacco, tires, or liquor.
35. Tariff is a tax on items coming into a country.
36. Quota is a limit on the quantity of a product that may enter a country.
37. Property tax is a tax on real estate or personal property; the largest source of revenue for
most local governments.
38. Personal Property tax is a tax on such items as furniture, machinery, and equipment.
39. Estate Tax is levied by the federal government on property transferred from deceased
people to their heirs.
40. Inheritance tax is one paid by the heir who receives property from a deceased person's
estate.
41. Gift Tax is on a gift of money or property to be paid by the giver, not the receiver, of the
gift.

				
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