2008 Illinois State 1040 Employee Withholding Form by sgt19112


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 Chapter 5

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                WE have...
• Federal Government - runs the country as a
  whole and makes laws that affect everyone in
  the country.

• State Governments - runs the state you live
  in and makes laws affecting the people in
  your state.

• Local Governments - county, city, or town -
  runs your local area and makes laws affecting
  the people in your area.                    2 of 33
Governments provide public services.

• In our economy, not everyone can work or
  does work. BUT - these people are still
 consumers and need to have an income. At a
 minimum they must get food, clothing, shelter, and
 health care. How can they do this?
  – Government helps though welfare, SS, and unemployment

  – http://www.fedspending.org/
  – http://www.warresisters.org/pages/piechart.htm
  – http://www.federalbudget.com/

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Where does the government get its

  We need to pay the people who perform the public
  Examples of public services are national defense,
  police and fire protection, health services, street and
  park maintenance, sanitation services, highway and
  bridge construction, public education, mental hospitals
  and prisons, water, gas, and electric systems,
  environmental protection, public transportation

       Would you want to do without these??
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        Taxes & Government
Federal, State, & Local Government Income
    Where does the Govt. get money?
  – Income taxes (43%)
  – Social Security & Medicare taxes (35%)
  – Other misc. taxes (14%)
  – Borrowing (8%)
  – http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
    • Go to page 86?

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                    Where the Govt. gets its Income

          Excise, customs,
          estate, misc. tax,   Borrowing, 8%
                                                 Personal income
                                                    taxes, 43%
Corporate tax, 7%

           Soc. Sec., Med.,
          unemployment tax,

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            Government Spending
            $2.4 trillion each year
                              Law enforcement
                               & general govt.
          interest on debt.         3%
                 8%                                    SS., Medicare,
Physical, human,
& comm. Develp.

 National Defense,
    veterans…                        Social Programs
       20%                                 21%

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The Outstanding National Debt as of
February 2008 is:

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     State & Local Govt. Provide
•   Building & maintaining roads
•   Operating police & fire services
•   Maintain the criminal justice system
•   Build and staff schools
•   Build and operate state colleges & universities
•   Support medical facilities
•   Construct & operate sewage treatment plants
•   Operate unemployment compensation
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 Democracy is based on equality under
               the law
       Principles of Taxation

• Benefit principle - those who receive or
 benefit from public service should pay for
 it. (toll roads, others?)
• Ability to pay principle - people with
 higher incomes should pay higher taxes.

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        Tax Classification
• Proportional Taxes - tax rate stays the same
  – Sales tax

• Progressive Taxes - tax rate increases as
  the amount being taxed increases.
  – Federal income tax

• Regressive Taxes - tax rate decreases as
  the amount being taxed increases.
  – Not many really exist, however most proportional
    taxes are really regressive. (state & local taxes)
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    How Taxes are Collected
• Direct Taxes
  – Income & property taxes are paid directly to
    the govt.
     • income/property tax
• Indirect Taxes
  – Included in the price of goods/services
     • Sales or excise tax
• Pay-as-You-Earn Taxes
  – Paid as you earn income;
     • federal inc. tax
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          Types of Taxes
• Sales Taxes
  – IL Govt.’s leading source of revenue
  – Proportional
  – Indirect (included in price)

• Business or license tax; tariffs

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           Property Taxes

– Main source of revenue for local govts.
– Most of money goes towards schools
– Based on land and buildings
– Determined by value of home
  • Appraised every 3-5 years

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              Excise Taxes

– Sale of certain products/services
– Higher taxes are used to discourage the use
  of certain products. SIN TAX!
  • Alcohol
  • Tobacco
– Other examples
  • oil products, firearms, air travel, gasoline

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        Social Security Taxes
• Paid on Money earned
• Found on paycheck—labeled FICA (federal
  insurance contribution act)
• Direct tax but not progressive
• FICA tax rate = 6.2% Medicare rate=1.45%
• FICA LIMIT=$102,000
  – Pension-for retired persons, disability or survivors
  – Medicare-medical care for those over 65

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        Estate and Gift Tax
– Taxes paid on all of the person’s property
  after they die.
– Fee paid for the privilege on passing on
  wealth to people who have not earned it.
– Gift taxes—anything over $10,000 needs to
  be taxed.

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  Business and License Taxes
• Show proof that the person has a right to
  perform a certain kind of activity
  – Ex. Teacher, driver’s license, fishing doctor

  Customs and Tariffs
  – Taxes on imported goods
  – Helps regulate how many imported goods are coming
    into the U.S.
  – Tax passed onto consumer in the way of higher
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        Taxes & Your Paycheck
                       Payroll Taxes:
   – based on the payroll of a business. (employee total earnings)
   – Paid to the govt. by you & employer
• Federal Income Tax:               paid on most types of
   – Amount varies by situation (dependents…)
• FICA Tax:      tax that supports social programs such as
  Social Security, Medicare and Disability.
• State Tax: tax that supports state programs
• Medicare Tax: supports Medicare program                       20 of 33
Federal Income Tax Brackets
    $0--$7825            10%

    $7825--$31,850       15%

    $31,850--$77,100     25%

    $77,100--$160,850    28%

    $160,850--$349,700   33%

    $349,700…            35%
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                  Other Taxes
Illinois sales tax: 6.25% min.

  Changes per county or town

(Cook cnty.10.25; Dupage cnty.7.25; Lake cnty.7%)

Illinois state tax: 3%

Social Security tax: 6.2% up to the limit=1$02,000

Medicare tax: 1.45%

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      Taxes & Your Paycheck
Withholding: employer collects payroll taxes
  from your wages. (fed. Income tax)
  – Spreads your tax payments over time
  – Govt. collects & can use money all year
Form W4
Gross income: amount earned before taxes
Net income: amount earned after taxes (p.161)
IRS: federal agency that collects income taxes
Allowance: number that reduces the amt. of money
  withheld from your pay. (ex. p.163-164)
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• Employee's Withholding Allowance
  Certificate. Based upon what you say
  on this form, your employer will withhold
  the correct amount of federal income
  tax from your paycheck. It is
  determined by:
• your exemptions
• your marital status
• your wages
• how often you get paid.                 24 of 33
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            Filing a Tax Return
Tax Return: forms that taxpayers use to calculate their
  tax obligation.
• 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 $100,000; interest less than $1500; no
  dependents; under age 65.

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• At the end of the year, your employer
 totals all your paychecks (income and
 deductions) and sends you a summary
 form - Wages and Tax Statement. Must
 send by January 31.
• You should get a form for each job that
 you worked at.
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           Form 1099 int
• If you have put some of your money in a
 savings account, your savings have
 probably earned some interest. Interest
 income is taxable. Must be sent by
 January 31 and report if you made over

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                 1040 EZ
Use Form1040 EZ if you meet all of the
 – filing single or married filing jointly
 – claiming no dependents
 – gross income is less than $100,000
 – 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       31 of 33
          Illinois State Form
• You will find the amount of money withheld
  from your paycheck on your W-2
• You MUST file your federal tax return
  before completing the state form
• No matter how much money you make,
  the State wants 3% of your gross income.
• Exemptions for dependents:
  – Make less than $2,000, your number is 1
  – Make more than $2,000, your number is 0 32 of 33
            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 individual.
   – Usually pay estimated taxes in quarterly installments
      to the U. S. Treasury.
   – Will have to fill out a 1040 and attach a schedule C
• Taxes can be filed on-line (over 40% are)
   – Will get refund faster
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