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What is a tax?
Contributions levied by government.
Taxes are assessed on .
income
sales transactions
property ownership
money generated from increases in value (capital gain)
payroll
imports/exports
amount of income that you earned is declared on a
tax return
Taxes withdrawn from paycheck include
Federal Income Tax
FICA (Social Security & Medicare)(7.65% straight off paycheck)
State Income Tax
What taxes are discussed by are more unique
Local Taxes (if applicable).
Most states have an income tax, sometimes a “user fee”
Federal Income Taxes are sent to the
IRS
FICA Taxes are sent to
Social Security and Medicare
State Income Taxes are sent to the
state tax department
Local Taxes are sent to the
local taxing authority
What is a tax account?
money withheld from your paycheck for Federal Income Taxes, from your employer sent to IRS applied to your account
Paycheck Formula
Gross Income
- Adjustment
Adjusted Gross Pay
Taxes
- FIT
- FICA
- SIT
- Deductions
net pay
FICA stands for
Federal Insurance Contribution Act.
taxes are calculated based upon
Adjusted Gross Pay.
FIT taxes depend on
Adjusted Gross Pay per paycheck / divide by pay period (24, 26..etc)
Tax Filing Status (Single, HOH, MFJ)
Number of Dependents
SIT taxes depend on
number of dependents or witholding allowances
How does your employer know your tax filing status or how many dependents that you have?
Fill out Federal W4 & State WV/IT-104 which tells employers proper tax filing status and number of dependents.
What is Progressive Tax.
means that the higher the income, the higher the rate of taxation.
Marginal Tax Rate
the person's highest tax bracket - last number taxed of TAXABLE income
Effective Tax Rate
tax liability/taxable income
Schedule 1
itemizes specific income types and Adjustments to income.
Schedule 1 is two pages, what does Pg 1 and 2 have
On Page 1, it itemizes Additions to Income,
On Page 2, it itemizes Adjustments to Income.
Form W2
Employer send you in January which itemizes your income earned from your job, and the taxes withheld from your paycheck.
Form 1099-NEC
If you earned any “Non Employee Compensation” (Income where you were not paid as an employee, and taxes are usually not withheld), then you will receive a 1099-NEC form.
Form 1098-E
Form 1098-E itemizes any student loan interest that has been paid in the prior year.
Taxes are calculated based upon
Adjusted Gross Pay.
Income Tax Formula
Gross income
- adjustment
adjusted gross income
- deductions
taxable income
THEN
Calculate Taxes based upon s Taxable Income.
In regards to taxes, adjustments and deductions on IRA forms affect your taxable income…
the exact same
In West Virginia, the tax tables are not based upon filing status, but rather, they are based upon the number of
withholding allowances (number of dependents)
In the paycheck formula, taxes are calculated based upon
Adjusted Gross Pay…Taxes must be calculated to find the Net Pay.
In the Income Tax formula, taxes are calculated based upon
Taxable Income. Taxes cannot be calculated until the Taxable Income is calculated.
Since Tax Credits count as a tax payment, they are more valuable than
Tax Adjustments or Tax Deductions.
