Personal Taxation
Understanding Your Taxes
Taxes
● Financial obligations imposed on individuals and businesses
by government entities
Governments use taxes to
● Build infrastructure
● Provide social welfare
● Pay for national defense
● Provide other public services
● Encourage economic activity
Types of taxes
● Federal income taxes
● State income taxes (where applicable)
● Payroll taxes
● Sales taxes
● Property taxes
Federal and State Income Taxes
Gross pay
● The total amount earned before taxes and other deductions
Withholdings
● Taken out of an employees pay by the employer and are either:
- Mandated by law
- Elected by employees
Net pay
● Gross pay minus withholdings
Payroll taxes
Federal Insurance Contributions ACT (FICA)
● Tax is used exclusively to pay for two government programs
Social Security (FICA Old Age, Survivor, and Disability insurance
[OSADI]).
● This applies to earned income up to $167,700 (2024)
Medicare( FICA health insurance [HI])
● Applies to all earned income
, Sales Taxes
● Imposed by state and local governments on the sale of certain
goods and services and are paid when you buy something
Determined based on two factors:
1. Tax base: the amount of money that will be taxed, generally the
cost of the item you purchase
2. Tax rate: used to calculate the amount of tax owed and is
generally denoted as a percentage rate, such as 7.5%
Tax Base x Tax Rate = Tax
Property Taxes
Property tax
● Assessed based on value of property you own, such as your car
or your home
● Vary by state and are most often assessed by the city or county
● Often referred to as ad valorem taxes, which means “according
to value”
● Based on the current assessed value of the property
● Determined by each taxing authority (city or state)
Need for Taxes
Understanding Your Taxes
Taxes
● Financial obligations imposed on individuals and businesses
by government entities
Governments use taxes to
● Build infrastructure
● Provide social welfare
● Pay for national defense
● Provide other public services
● Encourage economic activity
Types of taxes
● Federal income taxes
● State income taxes (where applicable)
● Payroll taxes
● Sales taxes
● Property taxes
Federal and State Income Taxes
Gross pay
● The total amount earned before taxes and other deductions
Withholdings
● Taken out of an employees pay by the employer and are either:
- Mandated by law
- Elected by employees
Net pay
● Gross pay minus withholdings
Payroll taxes
Federal Insurance Contributions ACT (FICA)
● Tax is used exclusively to pay for two government programs
Social Security (FICA Old Age, Survivor, and Disability insurance
[OSADI]).
● This applies to earned income up to $167,700 (2024)
Medicare( FICA health insurance [HI])
● Applies to all earned income
, Sales Taxes
● Imposed by state and local governments on the sale of certain
goods and services and are paid when you buy something
Determined based on two factors:
1. Tax base: the amount of money that will be taxed, generally the
cost of the item you purchase
2. Tax rate: used to calculate the amount of tax owed and is
generally denoted as a percentage rate, such as 7.5%
Tax Base x Tax Rate = Tax
Property Taxes
Property tax
● Assessed based on value of property you own, such as your car
or your home
● Vary by state and are most often assessed by the city or county
● Often referred to as ad valorem taxes, which means “according
to value”
● Based on the current assessed value of the property
● Determined by each taxing authority (city or state)
Need for Taxes
