Personal Finance Lesson 3
Students will be able to differentiate between the different types of taxes
Students will be able to demonstrate how standard deductions such as income taxes, social security (FICA), Medicare, deduct
There is no escaping
Regardless of one’s personal opinion, US citizens are required to pay taxes on income as well as purchases. Taxation is a normal part of daily life.
The United States has public services such as public education, postal services, law enforcement, healthcare, and investment in innovation and technology. The people and organizations that execute these public services, of course, need to be paid. Americans, pay for these services indirectly through taxes
the tax code and system is set up in a way that makes everyone pay their fair share of taxes. So on the money you make and take home, there is a certain percentage that you must pay in taxes.
Having a simple tax rate that applies to everyone isn't fair because not everyone earns the same amount of money for example, if someone takes home $200,000 and then they have to pay a 30% tax rate, then they'd be left over with $140,000, which is enough to have a great lifestyle. On the other hand, if someone earns $40,000 and then they have to pay 30% in taxes, then they'd only have $28,000 left over
Progressive Tax System
Progressive tax system, where you pay higher tax rates as your income increases. And this is what helps makes the system a little bit more fair because it gives people with lower income a tax advantage to make a come up.
Taxation: The use of taxes to finance government services and public projects.
Progressive Tax: A tax system in which the rate of taxation increases as the amount of income increases.
Regressive Tax: A tax system in which the rate of taxation decreases as the amount of income increases.
What Is the Internal Revenue Service (IRS)? The Internal Revenue Service (IRS) is a government agency that administers tax laws and collects federal taxes from U.S. individual and corporate taxpayers.
Financial Requirements of the Civil War
The Civil War in America created a need for funds to support military operations. This led to the implementation of the first income tax in the United States as a way to generate revenue for the war effort.
Tax Credit: A tax credit is an amount of money that reduces the taxes you owe. For example, if you owe $2,000 in taxes and have a $1,000 tax credit, you would only owe $1,000 in taxes.
Marginal Tax Rate: The marginal tax rate is the rate of tax applied to your last dollar of income. For example, if your marginal tax rate is 25%, you would pay 25 cents in taxes for every additional dollar you earn.
Tax Deduction: A reduction in taxable income that is allowed by law and decreases the amount of income tax that a person or business must pay. This is done by subtracting the amount of the deduction from the total amount of income earned.
Tax Credit: A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or, as in the United Kingdom, a form of state support.
Tax Evasion: Tax evasion is the illegal act of not paying or underpaying taxes that a person or entity is legally obligated to pay. It is a criminal act that can result in fines, imprisonment, or both.
W 4 Form
This form is a critical component of your employment paperwork, as it helps your employer determine how much federal income tax to withhold from your paycheck.