1 Vocab/Definitions WS Whats the Problem? Teens dont understand how TAX applies to them Most forfeit a refund!!! 2 Is this you??? 3 Ive Got A Job! Whats an I-9 and a W-4? Form I-9 Employment Eligibility Verification Proves you arent 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 Voters registration School or military ID Drivers license Social security card 4 So What Is A W-4? New employees fill out this form Tells employers how much federal income tax to withhold from paycheck 5 Filling Out the W-4 Correctly If dont fill out correctly: Owe money when taxes are due April 15 Could be taking out too much tax from paycheck Lose potential interest 6 A Few Key Terms You Need To Know WITHHOLDING: Represents money that an employer deducts from paycheck to pay all or part of employees taxes However, depending how much 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 7 Are you Exempt? Exempt if: 1. Werent required to pay federal income tax last year 2. Dont expect to this year either (made less than $5800) 3. If under 19 or a full-time student (or until 24 yr/full time) 4. 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 8 Examples: If you live with parents and under 19, you can be claimed as a dependent regardless of how much you make. 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! 9 In-Class Am I Exempt WS Am I Exempt WS I dont 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 10 Do: Pg. 6 then Fill out W4 WS What if I Make a Mistake? Claim exempt and make more than $5800? More than likely have to owe taxes! If you dont claim exempt (0 allowances) More than likely break even or receive a refund! 11 What? More Forms? W-2 will have 3 copies Your records Attach to state tax return Attach to federal tax return 1099-INT 12 The W-2 Must receive these by January 31 st 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 13 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! 15 W-2 and 1099-INT will help you to determine whether you are required to, or should, file a federal tax return! 17 18 Am I Required to File a Tax Return? 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 Filing Requirement Worksheet for Most Dependents 1. Calculate Gross Income: (earned income + unearned income) 2. Enter dependent's earned income plus $ Minimum amount$ Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income) 5. IS: Gross Income > Adjusted Earned Income? MUST file 6. IS: Gross Income < Adjusted Earned Income? DOES NOT have to file 3. 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. Calculate Gross Income: (earned income + unearned income) 2. Enter dependent's earned income plus $ Minimum amount$ Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income) 5. IS: Gross Income > Adjusted Earned Income? MUST file 6. IS: Gross Income < Adjusted Earned Income? DOES NOT have to file 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. Do I have to file return WS Filing Requirement Worksheet for Most Dependents 1. Calculate Gross Income: (earned income + unearned income) 2. Enter dependent's earned income plus $ Minimum amount$ Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income) 5. IS: Gross Income > Adjusted Earned Income? MUST file 6. IS: Gross Income < Adjusted Earned Income? DOES NOT have to file 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 22 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! Review Forms? There are 3 forms you can choose from to file 1040EZ simplest to file 1040A 1040 most lengthy to file 24 How Do I File the 1040EZ? 25 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) 26 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 27 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 28 Dont Want to Pay? What could you have done differently? If you dont choose to pay, IRS will add 5% to what you owe for each month you dont pay! W-2 Claimed 0 rather than exempt so take taxes out Watch out for scam artists! EZ Prob WS Where Does Your Money GO? Year 2011 in billions of dollars % of debt National Defense718 Billion20% Social Security73120% Healthcare (Medicare, Medicade, child health ins program) 76913% Interest on National Debt 2306% Education722% 30 Chap 7 review 1040 EZ quiz Payment or Refund? Payment: Due April 15 Refund: Check Direct Deposit Prob WS Chap 8 Review 32