Taxes and IncomeTaxes and Income

Employer’s and Income Employer’s and Income TaxesTaxes

• If you file exempt on you W-4If you file exempt on you W-4– Social Security and MedicareSocial Security and Medicare– No Federal or StateNo Federal or State

• Employer Pays Equal Share of Employer Pays Equal Share of Employee’s FICAEmployee’s FICA

Sources of FederalSources of Federal Government Income Government Income

Classifying TaxesClassifying Taxes

• Principles of TaxationPrinciples of Taxation– Benefit PrincipleBenefit Principle

• ex: Toll Roadsex: Toll Roads

– Ability-to-pay PrincipleAbility-to-pay Principle• Federal Income TaxesFederal Income Taxes• What occurs is happening on the tax table?What occurs is happening on the tax table?

Which principle do you believe in?Which principle do you believe in?

Progressive vs. RegressiveProgressive vs. Regressive

What does Progressive mean?What does Progressive mean?

• The more you make, the more you payThe more you make, the more you pay

• Situation: Sue makes $50,000 a year and Situation: Sue makes $50,000 a year and

she pays a 15% income tax rate. Joe she pays a 15% income tax rate. Joe

makes $20,000 and pays a 12% income makes $20,000 and pays a 12% income

tax rate.tax rate.

Remember: Income taxes are ProgressiveRemember: Income taxes are Progressive

Progressive vs. RegressiveProgressive vs. Regressive

What does regressive mean?What does regressive mean?

• Less taxes (in%) the more you can earnLess taxes (in%) the more you can earn

• Situation: Joe and Sue are in the market for a new car. Situation: Joe and Sue are in the market for a new car. They both find a used car that cost $10,000 and pays a They both find a used car that cost $10,000 and pays a 6% tax ($600). This $600 dollar tax is 1.2% of Sues 6% tax ($600). This $600 dollar tax is 1.2% of Sues income and 3% of Joe’s income.income and 3% of Joe’s income.

Remember: State and Local Taxes are regressive. Remember: State and Local Taxes are regressive. This tax falls heavier on people with lower income.This tax falls heavier on people with lower income.

Progressive vs. Regressive Progressive vs. Regressive vs. Proportionalvs. Proportional

Last but not least? What are Last but not least? What are

proportional taxes?proportional taxes?

These taxes take the same share of all These taxes take the same share of all people’s income.people’s income.

There are no perfect examples of There are no perfect examples of proportional tax.proportional tax.

How Taxes are Collected How Taxes are Collected

• DirectDirect– Paid DIRECTLY to the Paid DIRECTLY to the

GovernmentGovernment• Income and Property TaxesIncome and Property Taxes

• IndirectIndirect– Taxes that are included in the Taxes that are included in the

cost of a good or service.cost of a good or service.• Sales TaxSales Tax• LandlordsLandlords

Types of TaxesTypes of Taxes• State whether you agree or disagree State whether you agree or disagree

with the following statements:with the following statements:– Most of the money collected from Most of the money collected from

property tax goes to school districts.property tax goes to school districts.– Excise taxes are included in the price of Excise taxes are included in the price of

the item unlike sales taxes.the item unlike sales taxes.– Gifts that are worth $10,000 or LESS Gifts that are worth $10,000 or LESS

are not taxed by the government.are not taxed by the government.

Types of TaxesTypes of Taxes• Income TaxesIncome Taxes

– Federal, State, and localFederal, State, and local

• Sales TaxesSales Taxes• Property TaxesProperty Taxes• Excise TaxExcise Tax

– On sale of specific goods and services – tobacco, gas, On sale of specific goods and services – tobacco, gas, alcoholalcohol

• State & Local GovernmentsState & Local Governments– Driver’s LicensesDriver’s Licenses– Building PermitsBuilding Permits

• Business LicensesBusiness Licenses• Estate (death) and gift taxes ($10,000)Estate (death) and gift taxes ($10,000)• Business and license taxesBusiness and license taxes• Custom duties and tariffsCustom duties and tariffs

Mystery: WhoMystery: WhoTHE CASETHE CASE• A person tries for years to get the financial backing A person tries for years to get the financial backing

needed for a commercial venture. After finally finding needed for a commercial venture. After finally finding a backer, the person buys materials, hires employees, a backer, the person buys materials, hires employees, and begins work. The venture doesn’t meet its and begins work. The venture doesn’t meet its objective, but the person’s efforts change the world objective, but the person’s efforts change the world and the backers are elated by the results.and the backers are elated by the results.

THE MYSTERYTHE MYSTERY• Who is the person and what year was the venture Who is the person and what year was the venture

launched?launched?CLUESCLUES• The person is an Italian male.The person is an Italian male.• The venture used existing technology in a new way.The venture used existing technology in a new way.• The venture made future ventures possible.The venture made future ventures possible.• The man’s financial backers are Spanish.The man’s financial backers are Spanish.• The objective of the venture was to explore new The objective of the venture was to explore new

territory.territory.• The venture began near the end of the 15th century.The venture began near the end of the 15th century.

Answer:Answer:

Christopher Columbus set Christopher Columbus set sail in 1492, hoping to sail in 1492, hoping to

discover a new route to India. discover a new route to India.

What you need to knowWhat you need to know• W-4W-4• Exemption from Exemption from

WithholdingWithholding• W-2W-2• Property TaxProperty Tax• 1040EZ1040EZ• FICAFICA• IRSIRS• DependentsDependents• April 15April 15• January 31January 31

• Regressive TaxRegressive Tax• Exemptions/DeductionsExemptions/Deductions• Indirect TaxIndirect Tax• Gross IncomeGross Income• Net IncomeNet Income• Allowances & how they Allowances & how they

workwork• Excise TaxExcise Tax• TariffsTariffs• Public GoodsPublic Goods• Tax ReturnTax Return