UNIT 8: Paying Your Taxes

8-1 Property Taxes

• Taxes paid on real estate (houses,etc) collected by local governments

• Support services including schools, government operations, fire and police, and road maintenance• Billed annually or semi-annually (every 6 months)

http://lacountypropertytax.com/portal/bills/annualbill.aspx

Assessed Value of Property

• Amount of property tax is based on assessed value of property

• Assessed values are usually less than market value

• Properties in the same community have similar assessed values

Tax rate

cent = $0.01 mill = $0.001 (thousandth of $1)

Ex. 62 cents = $0.62

62 mills = $0.062

• Taxes are calculated for each $100 or $1,000 of assessed value:

per $100 = ÷100, per $1,000 = ÷1,000 • Sometimes the rate is shown as the

number of mills or cents for each $1 of assessed value.

Ex. Find tax due on a $50,000 house at the rate:

• $62 per $1,000 ($50,000 ÷1,000) x 62 = $3,100

• $6.20 per $100($50,000 ÷ 100) x 6.20 = $3,100

• 6.2 cents per $1($50,000 ÷1) x $0.062 = $3,100

Determining tax rates1. Tax districts determine their expenses for

the coming year and prepare a budget2. Estimate income from other sources3. Expenses – income from other

sources = amount to be raised by property tax

Decimal tax rate =Amount to be raised by property tax

Total assessed value of a district

ex. Total assessed value = $22,750,000 Total expenses = $382,700 Other income = $63,400

Amount raise by property tax?$382,700 – 63,400 = $314,300

Tax rate?$314,300 ÷$22,750,000 = 0.014 tax rate

*Tax rates are rounded to a minimum of 3 places!

8.2 Sales Tax

• Sales tax are imposed by local governments

• Some cities and states do not tax certain items

What items are NOT taxed?– Food– Prescription drugs– Serviceshttp://www.boe.ca.gov/cgi-bin/rates.cgi?LETTER=L&LIST=CITY

Ex. Find the tax on a sale of $102.50 at the rate 8.25%.

8.25% = 0.08250.0825 x $102.50 = $8.45625 ≈ $8.46

Finding sales tax when some items are not taxable

Ex. A mechanic took 4 hours to replace a car’s fan belt and battery. The service charge was $45 an hour. The belt cost $12.98 and the battery, $48.99. The sales tax rate is 7.75%.

Find tax on goods, but not on services.7.75% = 0.0775($12.98 + 48.99) x 0.0775 = $4.80 TAX

Find total bill.Taxable items $12.98

+ 48.99Tax + 4.80

Nontaxable ($45 x 4) 180.00 $246.77

8-3 Social Security Taxes and Benefits

FICA = Federal Insurance Contributions Act

a.k.a. Social Security tax

• Disability benefits – workers unable to work

• Medicare – provides hospital insurance for disabled people and people over 65

• Retirement benefits

• Survivors’ benefits – paid to dependents when insured worker dies

• Overall tax rate: 7.65% –Social Security = 6.2%

•Applied to maximum wage of $70,000

–Medicare = 1.45%• Applied to ALL wages

ex.Income = $82,000Social Security = $70,000 x 0.062 =

$4,340Medicare = $82,000 x 0.0145 = $1,189Total FICA = $ 4,340 + 1,189 = $5,529

http://www.ssa.gov/pressoffice/colafacts.htm

Retirement Benefits:• Amount of monthly benefit depends on:

– Age at which you retire– Eligibility– Number of years worked– Amount of last salary earned subject to SS

tax

• Age 65 is considered full retirement age = you get FULL benefits!

• Earliest age for SS is 62.

• Retiring early results in less benefits:– Age 64 receives 93.3%-Age 66 receives

108%– Age 63 receives 86%– Age 62 receives 80% *use table on p.298

Ex.If your average earnings were $55,000

and you retired at 64, you get:From table: $1,166

$1,166 x 0.933 = $1,087.88If you retire at age 62:

$1,166 x 0.8 = $932.80

8.4 Federal Income Tax VOCABULARY:• Gross income = total annual income

(from salary, wages, tips, and interest earned)

• Taxable income = income – (adjustments, deductions, and exemptions)

• Adjustments = ex. Business losses, alimony payments, payments to retirement plans

• Adjusted gross income = gross income - adjustments to income

• Deductions = mortgage interest, property taxes, medical expenses, losses, charity– Standard deduction = fixed

deduction*USE $4,000

• Exemption = amount of income per person that is free from tax *USE $2,500 per person