Paying Taxes in the U.S. Take a 10-Question Quiz!

Hi everyone. I'm Jennifer from English  with Jennifer. It's tax season! Ah!

One thing I don't like about being an  independent online teacher is filing  

taxes because it's rather complicated. Would you  like to know more about paying taxes in the U.S.?  

Or do you already know a lot and  think you can pass a short quiz?  

Well, let's start our lesson and I'll go over  some basic vocabulary related to taxes. Now,  

I'm not an expert on the subject, but  I'll explain things as I understand them.

What do we call the tax that people pay on the  money they earn, meaning the money they make?

C. Income tax. Our income is what  we earn. It's the money we make.  

"Earn" is the verb. "Earnings"  are what we receive.

"Wages" refers to a fixed amount of money that  you get for work that you do within a day, a week,  

or a month. People can also make a profit. That's  the money they gain from a sale of some kind.  

For example, people can make a  profit from the stock market.

There are different ways to earn income, but  our income is taxed. The government takes a  

percentage of our earnings so that it can  pay for all kinds of government expenses.  

"Tax" can be a noun or a verb. We pay  taxes. The government taxes our income.  

They tax our earnings. Our earnings are taxed.

"Expenses" refers to what we spend our money  on. In the U.S., college is a big expense.  

And at the federal level, I'd say defense  

is a big expense. The government  spends a lot of money on the military.

Who exactly collects our taxes? The  IRS. The Internal Revenue Service.

What is true about sales tax in the U.S.?

B. Most but not all 50 states have sales tax.  This is an additional amount of money we pay  

when we purchase things, like food. But other  stores besides grocery stores can have sales tax.

Actually, not all grocery stores have sales  tax. It depends on the state. In some states,  

groceries are not taxed. These  items are exempt from sales tax.

Let's play a little shopping game.  At a Massachusetts grocery store,  

which of these items have sales tax?

Well, we'll just draw a line  straight down the middle,  

and then we'll have two groups. On the left  are things that are exempt from sales tax.  

Milk, bread, fruits, and vegetables these  things are not taxed. But hot prepared foods  

at a grocery store are taxed. Pet food is also  taxed. Vitamins, non-prescription medicine,  

paper goods, and household cleaning supplies  all have sales tax in Massachusetts.

What other items are tax-exempt?

Most clothing. Not appliances, not cars,  and not food from a restaurant. Thankfully,  

clothing is usually tax-free. Where I live, a  lot of people head north to New Hampshire for  

tax-free shopping. That's because New Hampshire  doesn't have sales tax, and Massachusetts does.

Sales tax varies across the  country. It can be high or low.  

Massachusetts levies a statewide tax of  6.25%. "Levy" means "collect." Levy a tax.

The other two kinds of taxes that I listed are  less important for this lesson, but very briefly,  

estate tax is the tax on a person's estate when  they die. All the things a person owns a value is  

their estate. It's rather complicated, so I'm not  even going to attempt to explain this in detail.

Excise tax is tax on a specific good. It can be  paid at the time of sale, like on cigarettes.  

Or it could be paid annually. In  Massachusetts, we have excise tax on our cars.  

If a family has two cars, they pay excise tax on  each car. Thankfully, the longer you own a car,  

the less excise tax you pay. A newer more  expensive car will lead to a higher excise tax.

When must Americans pay their taxes?

B. But maybe i should have included a fifth  option of "never," but I'll talk about getting  

in trouble with the IRS a bit later. The answer  is by April 15th, so right now it's tax season.  

It's not fun unless you're an accountant. I sure  like the December holiday season a lot more.  

During tax season, we get ready to file  our taxes. We file our tax returns.

There are forms we must fill out. There are  documents we must collect. If you work for a  

company, your employer usually sends your  tax forms in January. This is a W-2 form.  

I'd like to give you a quick look at a W-2  form. When you file your taxes, the IRS will  

ask for your Social Security number (SSN). If  you don't have a valid Social Security number,  

you can file with what's called an Individual  Taxpayer Identification Number (ITIN). On a W-2,  

your wages tips and other compensation need  to be listed. A bit later, I'll explain about  

money withheld and specifically  Medicare and Social Security.

If you're an independent contractor like me, you  get a bunch of 1099 forms from people who paid you  

in the previous calendar year, so you have to keep  track of all your earnings and business expenses.  

When you do freelance work, you might  have a lot of miscellaneous earnings,  

that is money from different  jobs and different sources.

Thankfully, we can file our  tax returns electronically  

online, so it's not difficult  to meet the April 15th deadline.  

A deadline is the due date. We must file  our tax returns no later than April 15th.

Here's a quick look at a 1099. As I mentioned, you  can have income from different sources. A person  

can have income from rent if they own real estate.  You can earn royalties if you've published a book,  

for example. The form is quite short, but a  taxpayer can have several of these 1099 forms,  

and there can be numerous business expenses, so  the process of filing can be quite complicated.  

In the U.S., does everyone pay the  same percentage of their income?

D. No, we don't all pay the same percentage.  The U.S. has a progressive tax system.  

It's based on a person's ability to pay.  The more you earn, the more you pay.  

Higher earners pay a higher rate.  Lower earners pay a lower rate.  

The system divides us into groups  called tax brackets. If you earn little,  

like ten thousand dollars a year, you fall into  the lowest tax bracket and pay ten percent. If  

you're lucky enough to earn well over five hundred  thousand dollars a year, you fall into the highest  

tax bracket and pay thirty-seven percent. That's  if you're single -- one person, unmarried.

So, a single person who earns less  than ten thousand dollars a year  

will fall into the lowest tax bracket, but another  person may be filing as head of the household.  

That means the person has a family. The  person has dependents, people who depend  

on him or her financially. That could be a child  or another relative who lives in the same house.

So, this head of the household may earn thirteen  or fourteen thousand a year, but because they have  

dependents, they also fall into the lowest tax  bracket. Married people usually file jointly,  

meaning together. So, if a married couple earns  less than nineteen thousand dollars a year,  

they too will fall into the lowest tax bracket.  So, there are different factors to consider.

Some argue that a flat tax system is fair and a  lot simpler. Flat tax means that everyone pays  

the same rate, like ten or twenty percent. What  do you think? Is one system better than the other?  

Does it depend on the country? Let me  know your thoughts in the comments.

How do people pay their taxes?

D. People pay their taxes different ways because  people receive their money different ways.

When you get hired at a company, you  fill out a tax form called a W-4.  

This tells your employer how  much money should go to the IRS  

each time you get paid. In other words, money  is withheld from your paycheck. It's not a bad  

thing because if it turns out you overpaid,  you get a tax refund. You get money back.

The IRS will either mail you a refund check  or deposit the refund into your bank account.  

And if not enough money was withheld,  then you owe that money by April 15th,  

but it probably won't be a lot.

Let's take a quick look at a W-4. It's officially  called an employee's withholding certificate,  

and it tells you the purpose. You  complete the W-4 so that your employer  

can withhold the correct federal income tax  from your pay. It's pretty straightforward.  

You fill out your name and address  Social Security number or tax ID number,  

and then you state your status: single, married,  head of household. There are steps to follow,  

and at the end, you sign and date it  and return the form to your employer.

Many freelancers pay quarterly taxes.  They estimate how much they'll earn  

within the year, and then they make  a tax payment every three months.

Again, if they overestimate, they'll get a refund.  If they underestimate, then they owe money.  

If you don't make those quarterly  payments, it's still okay.  

You make a single payment before April 15th,  but you'll likely have to pay a penalty.

You need good financial planning because if  you owe taxes and then can't pay that money  

by April 15th, you incur tax debt. "Incur" is a  formal way of saying "have." You cause yourself  

to be in debt. You have debt. That's not good.  Tax debt can be a big problem for some people,  

but the IRS will allow people to pay  what they owe little by little. You  

can request an installment agreement, so  you can pay your taxes in installments.

Okay. Let's do a super quick check  because we're at the halfway point.  

What do you remember? What kind of  tax might you pay in a U.S. store?

Sales tax. What kind of tax do  people pay on their earnings?

Income tax. Which agency  collects taxes in the U.S.?

The IRS. If there are products that are not  taxed in a store, how can we describe them?

We can say they're tax-free. They're tax-exempt.  

They are exempt from tax. They're not  taxed. Okay. American taxpayers submit  

W-2 forms and 1099 forms. When must they  file their taxes? When's the deadline?

April 15th. 2022 is an exception due to a holiday,  but the traditional deadline is April 15th.  

What kind of tax system does the U.S. have?

A progressive tax system. What's the alternative?

A flat tax system.  

When taxpayers file, what kind of status  might they have? Can you name at least two?

Single, head of household, married filing  jointly, and another option, by the way,  

is married filing separately. What  makes a person "head of household"?

Dependents. If you pay too much in  advance, what do you get back from the IRS?

A tax refund.

Last question. If you fail  to pay, what do you incur?

Tax debt. Okay. Let's go on.

Is having dependents the only factor  that lowers the amount you owe the IRS?

B. No. A qualifying dependent makes  a taxpayer the head of a household.  

Because you have to provide for another person  financially, you receive a standard deduction.  

That means you can deduct or subtract a certain  amount of money from your gross income, that  

is, your total earnings. The IRS allows different  deductions. Another example of a deduction is  

a donation you make to a charity: a charitable  donation. After you calculate all your deductions,  

you arrive at your adjusted gross income  (AGI). This is your taxable income.  

There are also tax credits. A tax credit is  subtracted from the money you owe the IRS.  

You might get a tax credit if you  buy an electric car, for example.

Families can get help with the Child Tax  Credit. Parents receive a tax credit for each  

child they have, but higher earners receive  less of a credit. If you're self-employed,  

you have business expenses, and you're allowed  to list these expenses on your tax return.  

In other words, you can  write off certain expenses,  

like use of the internet and travel expenses.  This helps adjust the amount of money you owe.

What happens if you don't  file your income tax return?

I'm going to say the best answer  is B, but it's rather complicated.  

You won't go to jail for not filing  your taxes, but if the IRS finds out,  

they can take action against you. Part of  the job of the IRS is to collect back taxes,  

the money that people owe from the years  they didn't pay. The IRS will also calculate  

a new sum that the person owes, including  penalties and interest on the amount not paid.

So, failing to file and failing to pay can lead  to trouble. One factor is how much you earned.  

If you earned ten thousand dollars back in 2000  and didn't file, you'll probably be okay. But if  

you earned over eight hundred thousand dollars in  2000 and you didn't file, good luck hiding that!

What happens if you lie or cheat  when you file your tax return?

C. If you try to avoid paying what you owe, if  you deliberately try to hide how much you earned,  

that's called tax evasion and it's a crime. You'll  pay a high penalty, and you may face jail time.  

Basically, everyone needs to  remember that tax contributions  

are important. Paying taxes is a civic duty.  It's our responsibility as members of society.  

We pay into the system so that we can benefit  from it. Who actually files the tax returns?

E. Taxpayers or accountants. If you only have  a W-2, if you're single without dependents,  

and your finances aren't complicated, you can file  on your own. It's not that difficult. There's even  

software to guide you through the process. If,  however, you have your own business, you have  

multiple sources of income, you have dependents,  if your family circumstances have changed,  

you may choose to hire a Certified Public  Accountant or CPA. This person can help you  

file your tax returns and also help if you get  audited. If the IRS has reason to believe that  

you made mistakes on your tax returns, they can  officially investigate your financial accounts.  

This is called an audit. You can be  audited. You can get audited by the IRS.

What other taxes do Americans  pay besides federal income tax?

E. When we file our taxes, we're responsible  for paying federal, state, and local taxes.  

And each household is different. Some people  own property, so they pay property taxes.  

Remember how I talked about money  withheld from someone's paycheck?  

It's very common to have Medicare and Social  Security withheld as well. A percentage of our  

earnings goes to Medicare. That's health care  for the elderly and people with disabilities.  

A percentage also goes to Social Security.  That's a program that provides for the  

elderly and people with disabilities --  people who cannot work to earn wages.

Final quiz. Let's see what you  remember from the second half.  

What lowers the amount of your taxable income?

A deduction.

What lowers the amount you owe in taxes?

A tax credit.

What can an independent contractor write off?

Business expenses. If a person hides how much they  earn in order to avoid taxes, what crime is that?

Tax evasion. If the IRS thinks you made errors and  wants to investigate, what's the process called?

An audit. You can get or be audited by the IRS.

Who can help you prepare and file your taxes?

A CPA, a Certified Public Accountant.

Why is additional money withheld from a  paycheck? What two programs do taxpayers pay for?

Medicare and Social Security.

We've arrived at the end of  the process. This is a 1040,  

the form that taxpayers submit along with their  w2 or 1099 form. You can see the first field  

is where we indicate our filing status. There's  a field for your deductions and dependents,  

and then comes the fun math section. This  is why many people hire an accountant. Now,  

this is only one version of the 1040,  and other forms might be required.

Whew! Taxes are complicated. Do you file your  own taxes? Do you find it easy to handle your  

own finances or do you turn to others for  advice and support? Some people love numbers  

and the world of accounting. Thank goodness  for those people. They pay attention to detail,  

and they understand finances. Well, here's a  final challenge for everyone. Can you explain the  

tax system in your country? How do taxes work?  You can put your explanation in the comments.  

We'll end here. Please like the video if  you learned something new and share the  

lesson with others who can benefit from it. As  always, thanks for watching and happy studies!

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