Download Net income

Tax Forms &
Deductions
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Mr. Rosenstock
Economics
San Fernando High School
Net Income vs. Gross Income
• Gross income is the total amount a worker
is paid before any required or voluntary
deductions are made
• Net income, also called “take home pay,”
is the amount a person receives when
he/she cashes or deposits his/her check. It
is the remaining amount after deductions
are made
Gross Income
- Deductions
Net Income
Required Payroll Deductions
• By law, employers must pay taxes
deducted from employee paychecks
• The most common taxes are federal
and state, and sometimes cities have
their own local taxes
• In addition, most employees have to
pay a Social Security Tax (FICA), and
Medicare tax contribution with each
paycheck
Voluntary Payroll Deductions
Voluntary deductions are money you choose
to deduct for various purposes – examples include:
• Health Insurance
• Retirement Savings
• Union Dues
• Charitable Contributions
Voluntary deductions are made pre-tax. That means they
are taken from your check before taxes are deducted
What are taxes?
• Taxes are required contributions to
state revenue, levied by the
government on personal income and
business profits or added to the cost of
some goods, services, and transactions
State & Federal Income Tax
Social Security
The Social Security Tax is also
called the FICA tax
(Federal Insurance Contributions Act)
Social Security taxes provide the
following benefits to employees
and their dependents:
• Retirement benefits
• Benefits for the dependents of
retired workers
• Benefits for the disabled and their
dependents
Medicare
• The Medicare tax is used to provide
medical benefits for certain individuals
when they reach age 65
• Workers, retired workers, and the
spouses of workers and retired workers
are eligible to receive Medicare benefits
upon reaching age 65
Other Taxes
• Property tax
• Sales tax
• Gasoline tax
• Local/City taxes
What is tax
money used for?
•
•
•
•
•
•
•
•
•
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Bridges
Road maintenance
Research
Education
Armed services, national defense, veterans, and
foreign affairs
Retirement income for elderly
Social programs
Physical, human, and community development
Law enforcement
Interest on the national debt
Tax Forms
• Federal Tax
–
–
–
–
I-9
W-4
W-2
1040EZ
• California State Tax
– 540 2EZ
I-9
• All employees must complete this form and
provide valid original identification
• You are not eligible for pay until Payroll
Services receives an I-9
• The purpose of this document is to show that
each new employee hired after 1986 is eligible
to work in the United States
W4
• You use W-4 Employee's Withholding Allowance
Certificate Form to establish your withholding
allowances for Federal income taxes.
What is a “Withholding Allowance?”
• Employee-claimed exemptions on the tax form (W4)
employers use to determine how much of an
employee’s pay to subtract from his/her paycheck to
send to the tax authorities
• The more allowances you claim, the less income tax
will be withheld from your paycheck
• The fewer allowances you claim, the more income tax
will be withheld from each paycheck
• Exemption: An exemption is a deduction allowed by
law to reduce the amount of income that would
otherwise be taxed
– the IRS allows tax filers to claim $4,000 for each of
their allowable exemptions
– Personal exemption: You can put one exemption
for yourself if nobody else can claim you as a
dependent
– Dependent exemption: If you have dependents you
may claim one for each dependent
• Dependent: Children or family members who depend
on you for financial support
Higher #
Lower #
=
=
less $
more $
withheld
withheld
W-2
• Form W-2 reflects all taxable wages you received during
the calendar year and all taxes withheld from those wages
• The form serves as an annual report that enables you to
file your personal income tax return with the Internal
Revenue Service
This is the form you use
to fill in and complete
your tax return
Your employer will give
you this form around
February of each year,
so you can complete
your tax return by April
15
1040 EZ
Similar to the 1040
income tax form,
1040EZ is a faster and
easier way to file your
taxes
This form is only
eligible for people with
income less than
$50,000 and interest
income of $400 or less
California Form 540 2EZ
• This is the form most of you will use to file your taxes with the
state
• Eligibility to use:
– CA resident
– Single / Married / RDP (Registered Domestic Partner)
– Income from all sources less than $100,000
• Exceptions:
– You are a dependent of another taxpayer AND:
– Have dependents of your own OR
– Earn less than $13,679
You will then use Form 540
Student Loans
• When you finish college you need to take care of any
student loans you received
• You can deduct up to $2,500 of student loan interest
paid each year
– Your modified gross income cannot be more than
$80,000
– Only the person whose name is on the loan may
take the deduction
– The loan must be from an accepted institution (not
your folks)
– Do NOT delay paying a loan! – they keep accruing
interest!