Paychecks and Taxes

1
Lesson 4

• Paychecks and Taxes

2
Objectives

• After studying this lesson you will be able to

• explain the difference between gross pay and net
  pay.
• discuss the use of W-4 and W-2 Forms.
• complete a Form 1040EZ federal income tax return.

3
Words to Know

• pay period
• gross pay
• net pay
• W-4 Form
• dependent
• W-2 Form

• Internal Revenue Service (IRS)
• income tax
• Federal Insurance Contributions Act (FICA)
• Form 1040EZ

4
Payday

• A payday is the day you are paid for work you
  have already performed.

5
Pay Period

• Pay Period A length of time for which an
  employees wages are calculated.
• Most businesses have weekly, biweekly,
  semimonthly, or monthly pay periods.
• Most companies delay payday for a week or more to
  do proper record keeping.

6
Paychecks and Paycheck Deductions

• Your paycheck stub will state your gross pay, net
  pay, and deductions.
• Gross Pay The total amount of money earned
  during a pay period.
• Net Pay The amount of money left after all
  deductions have been taken from the gross pay.

7
Paychecks and Paycheck Deductions

• Common deductions are
• federal and state income taxes
• health insurance contributions
• charitable contributions
• social security and medicare taxes
• union dues and uniforms
• pensions and savings plans

8
A Paycheck Stub
9
The W-4 Form

• W-4 Form Employees Withholding Allowance
  Certificate, a form filled out by an employee
  when beginning a new job.
• It determines how much pay to withhold for taxes
  after considering allowances such as dependents.
• Dependent A person, such as a child or
  nonworking adult, who relies on a taxpayer for
  financial support.

10
The W-4 Form

• The form contains
• instructions (top)
• a part (middle) to keep for your records
• a part (bottom) to give to your employer

11
The W-2 Form

• Workers receive a W-2 Form every January from
  every employer that paid them wages in the prior
  year.
• W-2 Form Wage and tax statement a form showing
  how much a worker was paid and how much income
  was withheld for taxes in a given year.

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The W-2 Form

• You attach this to your annual tax statements.

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Think About It

• Employers must provide a W-2 Form to employees by
  January 31.
• Anyone who doesnt receive the forms by Feb. 15
  is required to contact the IRS for further
  directions.

14
Taxes

• Paying taxes is one of your responsibilities as a
  wage earner.
• Tax money pays for government services such as
  public education, the armed forces, and social
  security.
• Internal Revenue Service (IRS) The agency that
  enforces federal tax laws and collects taxes.

15
Income Tax

• Income Tax A tax on all forms of earnings.
• The federal government, most states, and many
  cities place a tax on income.

16
Did You Know?

• The nations first income tax was enacted by
  Congress to finance the Civil War.

17
Social Security Tax

• Federal Insurance Contributions Act (FICA) An
  act that allows the federal government to reserve
  a percentage of a paycheck for social security
  tax.
• Taxes for social security are figured as a
  percentage of earnings.

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Social Security Tax

• The paycheck deduction for this tax appears under
  the heading of FICA.
• Whatever the employee pays, the employer pays a
  matching amount.
• Medicare is the part of social security that
  covers hospital and medical insurance.

19
Filing a Federal Income Tax Return

• Your federal tax return must be filed by April 15
  each year.
• Failing to receive the proper forms in the mail
  is no excuse for not filing.

20
Think About It

• What should you do if you dont receive a form in
  the mail for filing your income tax return?
• From where can these forms be obtained?

21
Form 1040EZ

• Form 1040EZ The simplest income tax return form
  to complete.
• Most new employees meet the conditions for using
  this single-page form.

22
Completing Your Tax Return

• Read all instructions carefully before beginning
  your tax return and seek help if needed.
• You begin by printing your full name, address,
  and social security number.
• In future years, you will transfer the label from
  the form that arrives in the mail.
• Either round all figures to the nearest dollar or
  specify amounts to the penny.

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Completing Your Tax Return

• Taxpayers must report the following
• all income
• all allowable deductions
• total taxes owed, as identified in the tax tables
  of the 1040 form
• total income withheld by employers for taxes
• the amount of additional taxes owed or the amount
  of the refund due (if too much income was held
  for taxes)

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Completing Your Tax Return

• Remember that income includes wages, salaries,
  tips, interest, and all other forms of
  compensation.
• You can choose to have a refund applied to next
  years tax bill.
• The correct copy of your W-2 Form must be
  attached to the specified area of your statement.

25
Sign Your Return

• Dont forget to sign your return.
• By doing so, you declare that all the information
  you provided is true and accurate.

26
Think About It

• You must read this line before adding your
  signature
• Under penalties of perjury, I declare that I
  have examined this return, and to the best of my
  knowledge and belief, it is true, correct, and
  accurately lists all amounts and sources of
  income I received during the tax year.

27
State Income Tax

• If your state collects income tax, that return is
  due at the same time as the federal income tax
  return.

28
Tax Penalties

• Redo statements as needed so they are accurate.
• File tax forms on time.
• The IRS imposes stiff penalties for filing late,
  lying, and cheating.

29
Think About It

• Identify the difference between gross pay and net
  pay.
• Explain the purpose of each
• W-2 Form
• W-4 Form
• List the steps involved in filling out an income
  tax return.

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Chapter 23 In the Know

• A paycheck stub lists gross pay, deductions, and
  net pay.
• W-4 Forms are filled out by new employees to
  determine how much pay to withhold for taxes.
• W-2 Forms tell employees how much income they
  received from each employer and how much was
  withheld for taxes.
• Taxpayers must file accurate information in the
  correct forms by April 15 of each year.
• There are penalties for missing the deadline, not
  filing, or filing a false return.

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Chapter 23Think More About It

• Why do you need a W-2 Form to complete a 1040EZ?
• How does the information you provide on a W-4
  Form affect your taxes?
• What should you do if the information on your W-2
  Form doesnt match your paycheck stubs?