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    Calculate Your Federal Taxes

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    Calculate Your Federal Taxes

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    api-718873824
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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    107 views4 pages

    Calculate Your Federal Taxes

    Uploaded by

    api-718873824

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    NGPF Activity Bank

    Taxes

    CALCULATE: Your Federal Taxes


    In this activity, you will use sample W-2 and 1099 forms as well as information about deductions and credits to calculate the taxes owed and
    refund of each individual.

    Part I: Scenarios

    To illustrate how different circumstances affect your tax return, we’ll explore the case of four individuals. Assume all individuals are filing as single
    and not claimed as a dependant:

    Name Employment Info W-2 Form Deductions Credits

    Ashley Roslin ● Worked around 10 ● Ashley made a $50 ● Ashley


    hours/week at a local donation to an animal has no
    Ashley’s W-2
    coffee shop for $13/hour shelter credits
    available

    Melinda ● Worked around 20 ● As an independent ● Melinda


    Flowers hours/week at a local contractor, Melinda has $350
    ice cream shop Melinda’s W-2 was able to deduct in credits
    ● Worked irregularly as $645 in business
    an independent Melinda’s 1099 related expenses and
    contractor for a $925 for vehicle use
    landscaping company

    Elyse ● Worked as a bus driver ● Elyse paid $1,500 in ● Elyse has


    McPherson making $32/hour plus state and local taxes $1,000 in
    Elyse’s W-2
    overtime pay and made $5,000 in credits
    charitable contributions

    Jameson ● Work as an ● Jameson paid $16,000 ● Jameson


    Jameson’s
    Michaels independent in mortgage interest, has $1,400
    1099
    contractor consulting $2,500 in charitable in credits
    for a tech firm contributions

    Part II: Taxable Income and Deductions


    Before calculating taxes, you will sometimes be able to apply deductions, which reduce the amount of your total income that will
    be taxed.
    The deductions that will apply in this activity:
    Personal Deductions
    1) Take the standard deduction of $13,850 for single individuals in 2023. 90% of filers use this option.
    2) Itemize deductions if the total deductions will be more than the standard deduction. This would include items like:
    a) Interest on the first $750,000 of a mortgage
    b) State and local taxes up to $10,000
    c) Charitable contributions
    Business Deductions
    3) If you receive a 1099 for work as an independent contractor, you can deduct business expenses on top of your personal
    deductions
    Example
    You made $30,000 last year as an independent contractor and are able to apply deductions of $10,000 in personal expenses and

    www.ngpf.org Last updated: 1/4/24


    1
    $3,200 in business expenses. For personal expenses, it’s better to take the standard deduction of $13,850. You will calculate your
    taxes owed on $30,000 - $13,850 - $3,200 = $12,950 of taxable income.
    1. Consider each individual’s situation, then complete the table below by listing the income reported on all W-2/1099
    forms in column (a), total deductions in column (b) and their taxable income after deductions in column (c).

    Name Gross Income on W-2/1099 Total Deductions Taxable Income after


    (a) (b) Deductions
    (c)

    Ashley $6,240 $50 $6,190

    Melinda $21,151 $1,570 $19,581

    Elyse $34,220 $6,500 $27,720

    Jameson $66,500 $16,000 $48,000

    Part III: Federal Income Taxes Owed


    US Federal Income Taxes are a progressive tax system, which means that different portions of your income are taxed at different
    rates. Here are the 2023 tax brackets for single individuals:

    Example
    If your taxable income is $57,500 after all deductions, we would calculate federal income taxes owed like this:

    Tax Bracket Taxable Income Remaining Taxes Owed

    10% Total income remaining: $57,500 The first $11,000 is taxed at 10%:
    Bracket $11,000 * .10 = $1,100 taxes owed

    12% Bracket Total Income remaining: $57,500 - $11,000 = This bracket covers the next $33,725 in taxable income.
    $46,500
    You can find this by subtracting the top of this bracket from the
    top of the previous bracket:
    $44,725 - $11,000 = $33,725

    $33,725 * .12 = $4,047 taxes owed

    22% Total income remaining = $46,500 - $33,725 This bracket covers the next $50,650 in taxable income but we
    Bracket = $12,775 only have $12,775 left:
    $12,775 * .22 = $2,810.50 taxes owed

    Summary calculation
    Total taxes owed = $1,100 + $4,047 + $2,810.50 = $7,957.50 total federal income taxes owed

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    2
    2. Now it’s your turn! Calculate the total taxes owed for each individual.
    a. First, transfer the Taxable Income after Deductions column (c) from part II into column (c) below.
    b. Next, calculate the amount owed for each bracket interval up to the individuals’ highest tax rate.
    c. Finally, add these values together to find their overall taxes owed.

    Name Taxable Income 10% Bracket 12% Bracket 22% Bracket Total Taxes Owed
    after Deductions (d) (e) (f) (g)
    (c)

    Ashley $6,190 619 $619

    Melinda $19,581 11,000 (1,100) 8581 (1,029.72) $2,129.72

    Elyse $27,720 1,100 16,720 (2,006.40) $3,106.40

    Jameson $48,000 1,100 33,725 (4,047) 3,375 (720.50) $5,867,50

    Part IV: Credits


    Credits are a reduction in your Total Taxes Owed AFTER your taxes are calculated. There are a lot of different credits for things
    like child care, education, health care, and adoption.
    There are some credits that are refundable, which means that you will be paid if they cause a refund in total taxes owed.
    However, most credits are non-refundable, which means that they will reduce your total taxable income to $0 but will not give
    you a refund.
    All of the credits in this activity are non-refundable credits.
    Example
    You calculated that you owe $4700 in taxes and have a $500 tax credit. Your new taxes owed after credits would be $4,700 - $500
    = $4,200 in taxes owed after credits.

    3. Transfer the Total taxes owed column (g) from part III into column (g) below. The amount of each individual’s total
    credits is listed in Part I and can be brought down to column (h) below. Use this information to complete column (i)
    of the table.

    Name Total Taxes Owed Total Eligible Credits Taxes Owed after Credits
    (g) (h) (i)

    Ashley $619 $0 $619

    Melinda $2,129.72 $350 $1,779.72

    Elyse $3,106.40 $1,000 $2,106.4

    Jameson $5,867,50 $1,400 $4,467.5

    Part V: Summary
    To wrap things up, let’s calculate and compare each individual’s marginal and effective tax rate. We will also check to see if each
    individual will owe money in taxes or receive a refund.
    ● Your marginal tax rate is the highest tax bracket in which you owe taxes.
    ● If you divide your taxes owed after all deductions and credits by your total taxable income after deductions, then
    multiply by 100, you will calculate your effective tax rate.
    Example
    Total income: $70,050.00
    Total taxable income after deductions: $57,500.00
    Total taxes owed: $8,387.60 total federal taxes owed
    ● Your marginal tax rate is 22% because that is the highest tax bracket that your money is taxed in

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    ● Your effective tax rate will be

    You can calculate whether you will get a refund or owe additional taxes by subtracting your total taxes owed and the amount that
    is already withheld on your W-2 or 1099.
    Example
    You owe $8,367.60 and you had $9,250.60 federal income tax withheld from your paycheck on box 2 of your W-2.
    $8,367.60 - $9,250.60 = -$883.00. Because you paid more than you owed, you will receive an $883 refund!
    4. Transfer column (i) from Part IV above into column (i) below. Use the above example to complete the table below
    to summarize each individual’s taxes.

    Name Taxes Owed after Federal Taxes Withheld Refund/ Owed


    Credits on W-2/1099 Taxes
    (i) (l) (m)

    Ashley $619 $196.25 $422.74 owed

    Melinda $1,779.72 $534.96 $1,244.76 owed

    Elyse $2,106.4 $3,947.30 -$1,840.9 refund

    Jameson $4,467.5 $0 $4,467.5 owed

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