The Basics of Taxes Answer Key
Taxes are sums of money that a government mandates that its citizens pay in order to support the government itself and all of its goods and services. Taxes are collected by the federal, state, and local governments in various ways, such as income tax, payroll tax, property tax, sales tax, and excise tax. In this article, we will review some of the key concepts and terms related to taxes in the United States.
The Basics Of Taxes Answer Key
Income Tax
Income tax is a tax on earned and unearned income. Earned income is money earned from working for pay, such as wages and salaries. Unearned income is income received from sources other than employment, such as interest from a savings account or money earned from investments. Most state governments and the federal government collect income tax. Some local governments also have an income tax, such as New York City. The amount of income tax that a person owes depends on their income level, filing status, deductions, and credits. The federal income tax system is progressive, which means that the tax rate increases as the income level increases.
Payroll Tax
Payroll tax is a tax on earned income that supports both the Social Security and Medicare programs. These programs are mandated by the Federal Insurance Contributions Act (FICA), so the payroll tax is also commonly known as the FICA tax. Social Security is a federal government program that helps citizens fund retirement, as well as helps people who have a profound disability, are under the age of 18 and experience the premature death of a parent, or the death of a spouse in a family with minor children. Medicare is a federally funded program that helps pay for health care of senior citizens in the USA. The payroll tax is deducted from a person's paycheck by their employer. The current tax rate for Social Security is 6.2% of earned income, up to a certain limit that varies from year to year. The current tax rate for Medicare is 1.45% of earned income, with no annual limit.
Property Tax
Property tax is a tax on property, such as land, buildings (including homes), and motor vehicles (automobiles, boats, etc.). Property tax is usually paid once a year (annually) to the local government where the property is located. The amount of property tax that a person owes depends on the assessed value of their property and the tax rate set by the local government. Property tax is used to fund public services such as schools, roads, parks, libraries, and fire departments.
Sales Tax
Sales tax is a tax on purchased goods and services. Sales tax is usually added to the price of the item or service at the point of sale by the seller or retailer. The sales tax rate varies depending on the state and local area where the purchase is made. Some states have no sales tax at all, while others have different rates for different types of goods and services. For example, some states charge higher sales taxes for items such as alcohol, tobacco, or gasoline. Sales tax is used to fund various public programs and projects at the state and local level.
Excise Tax
Excise tax is a type of sales tax that is collected from the seller or retailer and as such often remain "hidden" in the price of a product or service, rather than being listed separately. Excise taxes are usually imposed on specific goods or services that are considered harmful or undesirable by the government. For example, some common items that are charged excise taxes are gasoline, alcohol, tobacco, and gambling. Excise taxes are used to discourage consumption of these items and to raise revenue for public health and safety purposes.
I hope this article helped you understand some of the basics of taxes in the United States. If you want to learn more about taxes, you can visit [the IRS website] or [the Hands on Banking website] for more resources.
a104e7fe7e