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"Why do we pay taxes?" Many individuals ask this question daily. The money youpayintaxesgoes to many places. In addition topayingthe salaries of government workers, yourtaxdollars also help to support common resources, such as police and firefighters.Taxmoney helps to ensure the roads you travel on are safe and well maintained.Taxesfund public libraries, parks, and many other things that serve the public.

In previous lessons, you learned that sales taxes are computed on the sale price of a product, and that the sales tax rate (%) varies from location to location.Individual earnings determine the amount ofIncome Taxa person will pay.Taxable income determines yourtax liability for the year.

Taxable Incomeis theamount ofincomeused to calculate how much tax an individual or a company owes to the government in a given tax year.Tax liabilityis the amount of money owed to the Internal Revenue Service (IRS) for government services. Individuals can determine the amount of their tax liability by referring totax tables.

2019 Federal Income Tax Table

Tax rate	Single	Married, filing jointly	Married, filing separately	Head of household
10%	$0 to $9,700	$0 to $19,400	$0 to $9,700	$0 to $13,850
12%	$9,701 to $39,475	$19,401 to $78,950	$9,701 to $39,475	$13,851 to $52,850
22%	$39,476 to $84,200	$78,951 to $168,400	$39,476 to $84,200	$52,851 to $84,200
24%	$84,201 to $160,725	$168,401 to $321,450	$84,201 to $160,725	$84,201 to $160,700
32%	$160,726 to $204,100	$321,451 to $408,200	$160,726 to $204,100	$160,701 to $204,100
35%	$204,101 to $510,300	$408,201 to $612,350	$204,101 to $306,175	$204,101 to $510,300
37%	$510,301 or more	$612,351 or more	$306,176 or more	$510,301 or more

PRACTICE EXERCISES

Replace the question mark with the proper symbol: <, >, or =

1. 225 ? 176

2. 6.2 ? 6.6

3. 175 ? 225

4. 35 ? 45

5. .5 ? .75

6. 235 ? 225

7. 1,095 ? 1,195

8. .5 ? .55

9. .5 ? .25

Refer to the 2019 Federal Income Tax Table for questions 10-12

Practical Applications

10. Bill is married filing jointly. His annual salary is $92,500.

a. What is his 2019 taxable income rate? ___________________________

b. What is Bill's 2019 tax liability? __________________________________

11. Brian is single and cares for his elderly grandmother, and qualifies as head of household. He works in the administrative offices at the local school. He makes $32,500 annually.

a. What is Brian's 2019 taxable income rate? ___________________________

b. What is Brian's 2019 tax liability? __________________________________

12. Tom and Janie have recently separated. Tom must file his income tax by claiming married filing separately. Tom's annual salary is $42,750.

a. What is Tom's 2019 taxable income rate? _________________________________

b. What is Tom's 2019 tax liability? ________________________________________

Social Securityis a style of insurance that provides some income and medical benefits for people after they retire. Social Security is referred to as a pension plan. President Franklin D. Roosevelt introduced the Federal Insurance Contributions Act (FICA) in 1935. FICA mandates a payroll tax on employers and employees. FICA also includes Medicare.

TheFICA tax rate, which is the combined Social Security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be7.65%for 2019 up to the Social Security wage base. The maximum Social Security tax employees and employers will each pay in 2019 is $8,239.80

FICA mandates that both employer and employee pay Social Security and Medicare Tax. Employers and employees split the cost of the FICA Tax equally. Unlike social security, Medicare is not subject to a maximum earnings cap. All earnings are subject to Medicare tax; there is no maximum contribution.

Write the percent number as a decimal number

1. 1.45%

2. 6.2%

3. 1.75%

4. 37.5%

5. .5%

6. 2.35%

Write the decimal number as a percent number

7. .0375

8. .005

9. .0556

10. .75

11. .0035

12. .0175

Practical Applications

11. The 2019 FICA contribution rate is 7.65%. The social security contribution rate is 6.2% and the Medicare contribution rate is 1.45%. The maximum social security contribution is $8,239.80 per individual, and there is no maximum contribution for Medicare.

a. What is the social security contribution for earnings of $83,000? _________________

b. What is the Medicare contribution for earnings of $83,000? _____________________

c. What is the social security contribution for earnings of $175,000? ________________

d. What is the Medicare contribution for earnings of $175,000? ___________________

Many young people are surprised when they receive their first paycheck from their employer. They are surprised because their paychecks are less than they anticipated. They did not take into consideration deductions such asdeductions for social security, Medicare, andbenefits.

Gross paysis the amount of money in a workers' paychecks for anydeductions. Money withheld from the paychecks for social security, Medicare, taxes, and benefits aredeductions. Employees use aForm W-4to tell their employers how much money to withhold for taxes. The employer disperse the funds to the appropriate authority.

The amount the worker receives in a paycheck after all deductions isnet pay.The deductions that reduce the employees' paycheck arewithholdings.Gross Pay-deduction (withholdings) = net pay (take home pay).

At the end of each year, an employer must provide the employee aForm W-2.TheW-2 form is a statement of earning that contains the amount the employee made and the employee deductions. Law requires employers to give theW-2 form to the employees by the end of January. Employees use the information on theW-2 form to file income taxes.

PRACTICE EXERCISES

Subtract the numbers

1. 725.47 - 154.43

2. 870 - 433.14

3. 81,090 - 5,341

4. 3,145 - 729.57

Add the numbers

5. 61.532 + 89.70 + 3.75

6. 65.243 + 10.35 + 491.11

7. 365.17 + 752.31 + 11.11

8. 18.88 + 14 + 71 + 12.12

9. Bronson's hourly wage is $15.00 for the first 40 hours and $22.50 for every hour in excess of 40 hours. Last week Bronson worked 49 hours. His withholdings are social security (6.2%), Medicare (1.45%), federal taxes ($212.12), state taxes ($96.13), county tax ($13.13), disability insurance (($3.31), medical insurance ($27.50), and dental insurance ($9.86).

a. What is Bronson's gross pay for the week? __________________________________

b. What is Bronson's social security deduction for the week? _____________________

c. What is Bronson's Medicare deduction for the week? _________________________

d. What are the total deductions for the pay period? ___________________________

e. What is the net pay for the pay period? ____________________________________

10. Remi works for a manufacturing company. Her annual salary is $57, 725.00. Each pay period Remi's employer deducts 4.0% for retirement. Remi's employer pays all health care expenses.

a. What is her social security deduction (6.2%)? _________________________________

b. What is her Medicare deduction (1.45%)? ___________________________________

c. What is Remi's biweekly gross pay? _________________________________________

d. What is Rem's retirement contribution? ______________________________________

e. What is Remi's take home pay for the pay period _______________________________

Write the decimal number as a percent number

7. .0375

8. .005

9. .0556

10. .75

11. .0035

12. .0175

Practical Applications

11. The 2019 FICA contribution rate is 7.65%. The social security contribution rate is 6.2% and the Medicare contribution rate is 1.45%. The maximum social security contribution is $8,239.80 per individual, and there is no maximum contribution for Medicare.

a. What is the social security contribution for earnings of $83,000? _________________

b. What is the Medicare contribution for earnings of $83,000? _____________________

c. What is the social security contribution for earnings of $175,000? ________________

d. What is the Medicare contribution for earnings of $175,000? ___________________

Only individuals whose incomes exceed certain levels must file tax returns. Four factors determine whether you must file, and each circumstance has its owngrossincomethreshold.Gross income is the amount of money you earn, typically on a paycheck, before payroll taxesand otherdeductions.

Deductionsare the non-taxable portion of a worker's income. Deductions are typically expenses that the taxpayer incurs during the year that are subtracted fromgrossincomein order to figure out how muchtaxan individual owes the Internal Revenue Service (IRS). Gross Income - Deductions = Adjusted Gross Income.

You must file a tax return if you earn more than thatthreshold. The four factors are:

• Whether you are someone'sdependent.Adependentissomeoneyou support. IRS Laws require you provide at least half of theperson'stotal support for the year. This includes food, shelter, clothing, etc.
• Whether you are married or single: The income threshold for individuals under 65 is $12,200 annually. The income threshold for individuals over 65 is $13,850.
• Marriedfilingjointly: The income threshold for married individuals filing jointly is $24,400 if both under individuals are under 65.Marriedfilingseparately: The income threshold for married couples is $5 for any age.
• Your age: Generally, a young person who is a dependent of another taxpayer does not have to file income taxes. However, there are some exceptions.
  • Unearned income: Interest and dividends exceed $1,100.
  • Earned income from wages is $12,200 or greater.
• Whether you're blind: Standard deduction increases to $1,650.00

Filing tax returns is a tedious and exact process. You must have all of your financial records well organized. Forms that you will need are Form W-2 and a Form 1099 if applicable. The W-2 is comes from the employer. The Form 1099 is a declaration of interest, dividends, royalties, prizes, and other miscellaneous income. The Form 1099 comes from the income source.

PRACTICE EXERCISES

Replace the ? with <, >, or =

1. 725.47 ? 154.43

2. 870 ? 433.14

3. 81,090 ? 81,090

4. 3,145 ? 729.57

5. 0.5 ? 0.55

6. .25 ? .75

7. Bronson's hourly wage is $17.50 per hour. He works 40 hours per week. His employer pays Bronson bi-weekly. Bronson's employer has withheld $2,100. Bronson is single and is ready to file his taxes.

a. What is Bronson's annual salary? __________________________________

b. What is Bronson's tax rate? _____________________

c. What is Bronson's tax liability? _________________________

d. Will Bronson receive a refund or owe additional taxes? _________________________

e. What is the amount that Bronson receives or owes for his taxes? __________________

8. Remi is Vice President of a manufacturing company. Her annual salary is $127,325 per year. Her employer withholds $27,500 for federal taxes. Bronson if married filing jointly.

c. What is Remi's tax rate pay? _________________________________________

d. Will Remi receive a refund or owe additional taxes? ______________________

e. What is the amount Remi receives for a refund or owes for additional taxes? _____________

9. Jon's employer withheld $8,973.33 in federal taxes last year. His tax liability was $8,792.75.

a. What is the difference in Jon's tax liability and Jon's tax withholdings? __________________

b. What is the amount of Jon's tax refund or additional tax liability? ______________________