Tax Basics
What is a Tax?
Money paid to the government to fund public services
What form do most people use to file their taxes?
Form 1040
What are payroll taxes taken from?
Your Paycheck
What is a tax deduction?
An amount subtracted from your income to lower taxable income
If you earn $1,000 and pay $100 in tax, what is your tax rate?
What are the two main types of taxes people pay?
Direct taxes and indirect taxes
What is the deadline to file federal taxes?
April 15th
Name one payroll tax.
What is a tax credit?
An amount subtracted directly from the taxes you owe
If your income is $50,000 and you get a $10,000 deduction, what is your taxable income?
40,000
What is income tax based on?
The amount of money you earn
What does the IRS do?
Collect taxes and enforce tax laws
What is FICA?
Federal Insurance Contributions Act (funds Social Security & Medicare)
Which is better, a deduction or a credit?
A credit
If you owe $2,000 in taxes and get a $500 tax credit, how much do you owe?
$1,500
What is a progressive tax?
A tax where higher income is taxed at higher rates
What is a tax bracket?
A range of income taxed at a specific rate
Who pays payroll taxes?
Both employees and employers
What is the standard deduction?
A fixed amount you can subtract from income without itemizing
If you paid $3,000 in taxes but only owed $2,500, what happens?
You get a $500 refund
What is the difference between gross income and net income?
Gross income is total earnings, net income is what you take home after taxes and deductions
How does marginal tax rate work?
Only the income within each bracket is taxed at that rate, not your entire income
What happens if payroll taxes are not withheld correctly?
You may owe money or get a refund when filing taxes
What is the difference between refundable and nonrefundable credits?
Refundable can give you money back; nonrefundable only reduces taxes owed to zero
If income is taxed at 10% up to $10,000 and 20% after, how much tax on $15,000?
$2,000