Income Taxes

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Taxes withdrawn from paycheck include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.