Warm Up Why do we pay taxes? TodayBegin 4.01 1 POB Unit 4.01 - - PDF document

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Warm Up Why do we pay taxes?

Today…Begin 4.01

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POB Unit 4.01 – Introduction to Taxes

Competency 4.0 Explain the effect and importance

• f taxes

Objective 4.01 Explain taxes on income

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Part 1: Why Pay Taxes

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Highways National Defense Police Protection Fire Protection Public Schools Bank Regulations Job Training Libraries Air Traffic Controllers Road Workers Teachers Subsidized school lunches Drug Rehabilitation Programs Scientific Research

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The Government

The government provides public goods and services for the community as a whole The government regulated business activities and redistributes income (so that it is “more fair” To pay for these things, the government charges everyone taxes.

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Vocabulary

Public Goods and Services

Benefits that cannot be withheld from those who don’t

pay for them and benefits that may be consumed by one person without reducing the amount of the product available for others

Taxes

Shift resources from private individuals and businesses

to the government in order to pay for public goods and services, regulate the economy, and redistribute income

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Where it Comes From

50% of the government’s money comes from personal income taxes. 35% comes from social security, Medicare, and retirement taxes 7% from corporate income taxes 8% from excise, customers, estate, gift, and miscellaneous taxes

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Where it Goes

36% of the federal government finds goes to Social Security, Medicare, and retirement 18% to national defense 18% on Social Programs 10% to pay interest on debt 10% on physical, human, and community development 6% to pay down the debt 2% law enforcement, and general government

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Activity

Year Revenue Spending 1950 $39 billion $43 billion 1960 $93.5 billion $92 billion 1970 193 billion $196 billion 1980 517.1 billion $591 billion 1990 1,032 billion $1,252 billion 2000 2,025 billion $1,789 billion

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Activity

In what years did the government spend more than it collected? How many times larger was revenue in 2000 than in 1950? How many times greater was spending in 2000 than in 1950? Which grew more – revenue or spending?

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Activity

Answers:

1950, 1970, 1980, 1990 About 52 times larger About 42 times larger Revenue

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Warm Up How do you think revenue and spending will change in the future? Objective: Continue 4.01 (Parts 2-3) Explain taxes on Income Complete Tax Simulation Activity on IRS website

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Part 2: Calculating Gross Earnings

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Payroll Records

Payroll is a major expense for most companies and all records must be accurately maintained Payroll is a list of employees and the payments due to each one for a specific pay period

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Payroll Records

A pay period is the amount of time over which an employee is paid

Weekly Bi-weekly Semi-monthly Monthly

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Payroll records

The 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 Pays payroll taxes

Mistakes by the clerk can cost a business thousands of dollars!

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Payroll records

A payroll system is the way in which the payroll is paid All payroll systems have certain tasks in common:

Calculates earnings Calculates deductions Prepares payroll checks Reports payroll information to government Records earnings and deductions in payroll and

accounting records

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Calculating Gross Earnings

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 + commission or bonus Overtime pay

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Calculating Gross Earnings

Salary is a fixed amount of money paid to an employee for each pay period

• Mr. Doe is paid a salary of $2,000 a month

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Calculating Gross Earnings

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

Example: Sally is paid $6.25 per hour. Last

week, she worked 36 hours. Sally’s gross earnings are 36 x $6.25 = $245.00

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Calculating Gross Earnings

An electronic badge reader is an identification badge with a magnetic strip that contains employee information used to record starting and ending work hours.

Used to keep wage employees honest about

their hours worked.

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Calculating Gross Earnings

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

Sue is paid a 5% commission on all her sales. Last

week, Sue’s total sales were $8,254. Sue’s gross earnings were $8,245 x .05 = 412.70.

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Calculating Gross Earnings

Overtime rate, set by the Fair Labor Standards of 1938, is 1.5 times the employee’s regular hourly rate

John worked 43 hours last week. His hourly

rate is $6.60.

Regular

40 x $6.60= $264.00

Overtime

3 x $9.90= 29.70

Total

$293.70

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Calculating Gross Earnings

Activity: calculate the gross earnings for the following employees

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Calculate Gross Earnings

Employee Total Hours Pay Rate Regular Earnings Overtime Earnings Gross Earnings James 33.5 $6.95 Betty 38 $7.80 Bobby 44.25 $8.30 Jean 43 $7.25 John 39.5 $8.30 Kelly 40 $7.50 Nelson 42.5 $9.75

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Calculate Gross Earnings - Answers

Employee Total Hours Pay Rate Regular Earnings Overtime Earnings Gross Earnings James 33.5 $6.95 $232.82 $0 $232.82 Betty 38 $7.80 $296.40 $0 $296.40 Bobby 44.25 $8.30 $332.00 $52.91 $384.91 Jean 43 $7.25 $290.00 $32.63 $322.63 John 39.5 $8.30 $327.85 $0 $327.85 Kelly 40 $7.50 $300.00 $0 $300.00 Nelson 42.5 $9.75 $390.00 $36.56 $426.56

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PAUSE

Worksheet on gross earnings Flashcards Taxes for Teens Chapter 2

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Part 3: Payroll Deductions

Objective 4.01 Continued…

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Deductions

Deduction is an amount that is subtracted from gross earnings Deductions required by law:

Federal income tax Social Security tax State and local tax

Some deductions are voluntary

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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 paycheck

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Warm Up

Who makes more?

Getting a salary of $40,000 a year. Making $18 per hour working 40 hour weeks. Making 5% commission on $20,000 average

weekly sales.

Hint: There are 52 weeks in a year.

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Deductions

Form W-4 is an employee’s withholding allowance certificate that shows the number of allowances claimed for federal and state income taxes.http://www.irs.gov/app/understandingTaxes/ student/simulations.jsp The amount withheld for federal taxes depends on three factors

Martial status Number of allowances Gross earnings

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Deductions

An employee who does not pay federal income tax can be “exempt” from withholding if he:

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 interest Cannot be claimed as a dependant on someone

else’s tax return

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Deductions

If an employee writes “EXEMPT” on form W-4, the employer will not withhold federal income taxes.

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• Go to

http://www.irs.gov/app/understandingTaxes/student/hows.jsp

• Work through Modules 1-7
• Make note of important facts, they are subject

to being quiz material Tutorials and Simulations

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Deductions

Allowance reduces the amount of income tax to be withheld.

The greater the number of allowances claimed

by the tax payer, the lower the amount of income tax withheld from earnings.

Tax Table shows the amount to be withheld from the employees each pay period based

• n their filing status.

http://www.savewealth.com/taxes/rates/single/

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If Taxpayer's Income Is... Then Estimated Taxes Are...

Between But Not Over Base Tax + Rate Of the Amount Over $0 $7,300 $0 10% $0 $7,300 $29,700 $730.00 15% $7,300 $29,700 $71,950 $4,090.00 25% $29,700 $71,950 $150,150 $14,652.50 28% $71,950 $150,150 $326,450 $36,548.50 33% $150,150 $326,450

• - - - -

$94,727.50 35% $326,450

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Example # 1

Kevin Lewis , a single taxpayer, has TAXABLE INCOME of $110,000. Lewis' income falls between:

Between But Not Over Base Tax + Rate Of the Amount Over $71,950 $150,150 $14,652.50 28% $71,950

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Estimated Taxes= Base Tax + (Rate x Amount Over) $14,652.50 + [.28 x ($110,000 - $71,950)] = $14,652.50 + (.28 x $38,050) = $14,652.50 + $10,654.00 = $25,306.50

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Deductions

Social Security Tax

Employers also collect social security taxes for

the federal government

The Federal Insurance Contributions Act

(FICA) established the present social security program in 1935.

The FICA taxes finance programs that provide

income to certain individuals:

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Deductions

Social Security Continued:

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 benefits

for the elderly

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Deductions

There are two FICA taxes: social security and Medicare. Each tax is separately recorded on payroll

• documents. Tax rates are as follows:

Social Security = 6.20 % Medicare = 1.45 % Total FICA = 7.65 %

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Warm Up What does FICA stand for, what is included in it? How do you calculate it? Calculate the FICA taxes for a $100,000 salary. Be sure to show your work and parts of FICA. Also, remember the SS cap. Refer to the example in your notes. Objective 4.01 Part 3 Continued: Deductions 4.01 Parts 1-3 Quiz Finish Module 1&2 Tutorials and Simulation Units 2-3 Test Corrections

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Example

How much SS, Medicare, and FICA taxes would one have to pay on a $50,000 salary? Social Security = 6.20 % * 50,000= $3100 Medicare = 1.45 %*50,000=$725 Total FICA = 7.65 %= SS + Medicare =$3825

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Deductions

The social security tax is deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached The amount increases each year For 1998, the max taxable earnings amount is $68,400. Today it is $90,000.

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Deductions

Calculate FICA for Lisa who earns $75,000 in 1998.

Social Security $68,000 x .062 = $4,240.80 Medicare

$75,000 x .0145 = $1,087.50

Total FICA

$5,328.30

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Example

Salary=100,000 SS=90,000*.062=5580 Medicare=100000*.0145=1450 FICA=5580+1450=7030$ Netpay=?

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Calculating Taxes Worksheet

Create a table like shown at the bottom to show

a breakdown of each employee’s taxes.

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Deductions

State and local taxes

Most states (including NC) 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

North Carolina State Income Tax Information

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Deductions

Voluntary Deductions

Most Employers agree to deduct other amounts

from their employees’ payroll check to accommodate the wishes of the employee.

Union dues Health insurance payments Life insurance payments Pension and retirement contributions Credit union deposits and payments US savings bonds Charitable contributions

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Part 4: Payroll Records

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Payroll Records

Payroll register is a form that summarizes information about employees’ earnings for each pay period Why is a payroll register important?

To comply with federal and state lows, payroll

records must be kept accurately.

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Payroll Records

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 receives a printed record Made through electronic funds transfer

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Payroll Records

Employee’s Earnings 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

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Payroll Records

Businesses keep employee earnings records

• n a quarterly basis.

This makes it easier to complete government

reports that are required each quarter

At the end of the quarter, the amount columns

• n each employee earnings records are totaled.

The final amount in the accumulated earnings

column is carried forward to the top of the employee earnings record for the next quarter.

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Payroll Records

Most large companies perform payroll functions with a computer. The computer:

Performs all the payroll calculations Prepares and prints the payroll register Prints the payroll checks and stubs Maintains the employee earnings records

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February 27, 2009

Warm Up Why is payroll confidentiality important? Objective 4.01 Part 5: Payroll Taxes

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A Matter of Ethics

During lunch, one of your co-workers, Donald, tells you that one of the company’s most valued customers has overpaid his bill by $30. Instead of returning the cash, Donald kept it. Now he’s

• ffering to pay for your lunch with part of that

money.

What is your reaction? What are you going to say to Donald? Should you tell his supervisor? Do you think Donald should be fired?

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A Matter of Ethics

As a payroll clerk at a small company, Donna knows the salaries of all the

• employees. While Donna was at a party last

week, she told several friends what two company’s administrators earn.

Do you think Donna should have revealed this

information?

What would you do if you were her supervisor

and found out about this?

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A Matter of Ethics

Imagine that you’re the payroll clerk for The Gap. Your friend, Amber, who also worked there is interested in one of the sales clerks and she wants to find out how much money he makes and if he’s married.

What are the ethical issues here? What are the alternatives? Who are the affected parties? How do the alternatives affect the parties? What would you do? (decision making process)

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Part 5: Employer’s Payroll Taxes

Here we will talk about the taxes that the employer has to pay both for the business and on your behalf

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Employer’s Payroll Taxes

Employer’s FICA taxes

Under the Federal Insurance Contribution Act,

both the employee and the employer pay FICA taxes

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Employer’s Payroll Taxes

Federal Unemployment Tax Acts (FUTA) and the State Unemployment Tax Act (SUTA)

Require employers to pay unemployment taxes Based on a percentage of the employee’s gross

earnings.

Collected to provide funds for workers who are

temporarily unemployed

Somewhere around 8% of gross earnings

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Part 6: Tax liabilities payments and tax reports

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Payroll Tax Liabilities

At regular intervals, payroll taxes and amounts withheld from employees are paid by the employer to government agencies These items include:

FICA and employees’ federal income taxes Employees’ state income taxes Federal and state unemployment taxes

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Payroll Tax Liabilities

FICA and Federal Income taxes – one payment is made for:

Social security and Medicare taxes (employer +

employee)

Employee’s federal income tax withheld

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Payroll Tax Liabilities

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 reports are filed

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Payroll Tax Liabilities

Federal Unemployment Taxes

Most businesses pay the federal unemployment

• r FUTA tax quarterly

If a business has accumulated federal

unemployment taxes of less than $100 for the year, only one annual payment is necessary

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Payroll Tax Liabilities

State Unemployment Taxes

The requirements for paying state

unemployment taxes vary from state to state

Usually state unemployment taxes are also paid

• n a quarterly basis

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Payroll Tax Liabilities

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 US government

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Payroll Tax Liabilities

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

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Payroll Tax Liabilities

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

Federal, state, and local income taxes and social

security

Should be compared to payroll stubs The employer will also send a copy of the W2 to the

IRS and that determines if you own more or get $$ back

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Quiz

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Flashcard Words Parts 1&2

Tax Payroll Pat Period Payroll clerk Gross earnings Salary Wage Electronic Badge Reader Time card – a record

• f the times an

employee arrives and leaves work each day Commission Overtime Rate Public Goods and Services

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Flashcards – Part 3

Deduction W-4 (Employee’s Withholding Allowance Certificate) Employer’s Federal Tax Table (Tax Table) – shows the amount

• f taxes to be withheld from employees each pay period based on

their filing status Federal Income Tax State Income Tax Social Security Tax (FICA)

• ld age and disability insurance

survivor’s benefits program Medicare Tax 401 (K) – a personal employee retirement plan, which is exempted from taxes on earnings

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26 Flashcards – Part 4 &5

Payroll register Net pay Direct Deposit Employee’s Earnings 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

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Flashcards - Part 6

Federal Unemployment Tax Acts (FUTA) State Unemployment Tax Acts (SUTA) Federal Tax Deposit Coupon (Form 8109) EFTPS Form 940 Form 941

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Warm Up Look through your 4.01 vocabulary. Are there any terms that still confuse you? Today… Turn in./Correct quizzes

Review with Quia exercises. Work on Vocabulary.

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