Federal Related (Taxes)
Categories of federal spending
Medicare, Social Security, Defense, Health; where your taxes are being used to fund these categories
I-9
Form used by an employer to verify an employer's identity and to establish that the worker is eligible to accept employment in the U.S
Paystub
Document issued by an employer that shows an employee's gross earnings, deductions from those earnings, and net pay
Job
State of being employed; an occupation
Old-fashioned paper filing
Pros: feels safer, you are in charge, Cons: easier to make mistakes or miss deductions, mailing it will take longer
Discretionary spending
Spending by the federal government determined by legislative action and approved through votes by elected officials
W-4
A form completed by an employee to indicate his or her tax situation (exemptions, marital status, etc.) to the employer, who then withholds the corresponding amount of taxes from each paycheck
Withholding
The portion of an employee's wages that is not included in their paycheck because it goes directly to federal, state, and local taxes
Refund
In the context of taxes, it is the return of payment or money that the government gives back to a taxpayer who overpaid their taxes
Tax preparation websites
Pros: faster, take advantage of tax reduction, easy to use, access to tax help, Cons: may not be able to deal with complex tax situations, people can make errors when entering info
Mandatory spending
Spending by the federal government required by previously existing laws, including funding programs like Social Security and Medicare/Medicaid
W-2
A form that an employer must send to an employee and the IRS by January 31 each year to report the employee's annual wages and taxes withheld from their paycheck
Gross pay
Net pay
-Income earned before taxes, benefits, and payroll deductions
-Take home pay what an employee earns after payroll deductions
Someone you financially support who can be claimed on a tax return to reduce your taxable income and lower your taxes
Hiring a tax professional
Pros: helps with unique financial situations, minimize errors, advice available, helps when experiencing a major life event, Cons: Can be expensive to hire one
FICA
This means Federal Insurance Contributions Act; a federal law that requires an employer to withhold taxes from the taxes they pay their employees- funds Social Security and Medicare
1099
A form that details all "non-employee" (self-employed) compensation, including for specific jobs like freelancers or contractors
Employee
Independent Contractor
-Someone employed for wages or salary; working for someone else
-Someone who works as required under an agreement, does not work for service, decides their hours, self-employed
Owe
Deduction
-Need to pay/repay to someone, a bank, a business, or a government (in taxes)
-An expense subtracted from a taxpayer's gross income (taxable income)
Types of taxes
Regressive taxs - Takes a larger percentage from low income groups than high income groups
Progressive taxes - Increases tax rate as income goes higher
Proportional taxes - Same percentage of tax for all income group; less money for low income groups to afford basics; ex. 30% tax rate for all
Tax thresholds
73,000 - can file taxes for free if under this income
12,950 - if your earned income is greater than this, you must file a return
1,150 - if your unearned income is greater than this, you must file a return
1040
The standard International Revenue Service (IRS) form that individuals can use to file their annual income tax returns
Self-employment tax
The tax rate is 15.3% for those who are independent contractors or self-employed; consists of Social Security and Medicare taxes
Tax return
Annual report to the IRS summarizing total income, deductions, and taxes withheld by employers (don't need to file this if <$12,950)