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In order for the government to run;[br]it needs money.

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The government gets its money[br]by taxing its people.

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Taxes pay for all sorts of government[br]jobs and services.

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Federal taxes help pay for national things[br]like the president, congress,

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federal judges, and the military.

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State taxes pay [br]for local roads and the governor.

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County and city taxes help pay[br]for schools, fire trucks, and the police.

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Without taxes the government couldn't run[br]and the country would be in chaos.

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So, as much as we don't like paying taxes[br]doing so is an important part of living

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in a society.

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A tax is money that the government [br]collects in order to pay for everything

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that the government does.

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We work for money, or an income.

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And the government takes a portion[br]of this as a tax.

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Payroll withholdings are taken out[br]of an employee's paycheck

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every time payroll is run.

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There are federal, state, and sometimes[br]even local taxes.

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Withholding taxes are payroll taxes[br]where the employer withholds a percentage

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of the employee's income for federal,[br]state, and local income taxes.

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Employer taxes are payroll taxes[br]that are paid by the employer only.

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Some payroll taxes like Medicare [br]and Social Security are shared taxes

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that are split between the employer[br]and employee.

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Employers are responsible for payroll[br]taxes for their employees;

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however, employers are not responsible[br]for managing payroll taxes for contractors.

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How are payroll taxes going to affect[br]how much you see on your paycheck?

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The amount on your paycheck before taxes[br]are taken out is gross pay.

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The amount after payroll taxes and other[br]deductions like benefits is net pay,

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also known as take-home pay.

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One tax that comes out of your paycheck[br]is the social security tax.

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This tax is meant to help people[br]when they retire.

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Once you're old enough you can start [br]collecting a social security check.

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Until then you will pay a portion and your[br]employer will also pay into this tax.

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Medicare tax comes out[br]of your paycheck too.

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It pays to help people age 65 and over[br]who are sick and need medical care.

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You will pay part and your employer[br]will also kick some in on your behalf.

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In addition,[br]to the payroll taxes we talked about.

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Employers must pay an unemployment tax[br]for each individual

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that works at the company.

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This is called state and federal[br]unemployment taxes.

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There are other taxes beside just payroll.[br]So, let's keep going.

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Income tax is what's called[br]a progressive tax.

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Which means that those who make more[br]money pay a higher tax rate.

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If you make very little money, you pay[br]no income tax at all.

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If you make a decent amount of money,[br]you pay a fraction of it to the government

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If you make a lot of money, the fraction[br]you pay is theoretically higher.

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This system is designed this way[br]because those who have enough money

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not to worry about putting food[br]on the table each day

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can afford to pay more to the government.

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Income taxes are a percentage of the money[br]someone makes on their job.

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There are different types of income tax[br]including federal, state, and local income tax.

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Federal rates can be anywhere[br]from 0% to 39.6%

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and state rates run from 0% to 13.3%[br]in some states people can pay over 52%

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of their income in income taxes alone.

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You report and file these taxes each year[br]by April 15.

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All the money you make during the year[br]is considered income.

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No matter how you make it.

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If you work at a job for wages,[br]that's income.

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If you win the lottery,[br]that's income too.

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If you own property like a house, then you[br]probably have to pay property taxes.

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There's often a property tax[br]from the county and the city.

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Property tax is usually a percentage[br]of the current value of the house.

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If you own a $300,000 house [br]and the tax is 3%,

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then each year you have to pay [br]the government $9,000 in taxes.

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These taxes are paid when you make[br]a major purchase like a car or home.

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And again each year based on the value[br]of the item.

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Your home tax may be included as part[br]of your monthly mortgage payments.

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Sales tax is placed on all retail sales[br]in many areas.

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Sometime items like food or clothing[br]are exempt from sales tax in some places.

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Every time you buy something at a store[br]and they add on the tax at the end,

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that's the sales tax.

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Sales tax levels vary depending[br]on where you shop, and what you buy.

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Businesses also have to pay[br]all sorts of business taxes

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depending on how much profit they had.

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And there are lots of other taxes such as[br]tariffs on imports, gift taxes,

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estate taxes, and unemployment taxes.

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If this isn't enough[br]to make your head spin

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don't worry, the current tax code[br]is over 4 million words long.

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No one is going to be reading that!

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This is why we depend on tax professionals[br]and tax programs to help us file our taxes

0:05:03.570,0:05:04.770
each year.

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Here's the bottom line on understanding[br]the U.S. Tax System.

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Your paycheck won't as big as you think[br]it should be after all the deductions.

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Your new tennis shoes won't cost you what[br]the price tag says after sales tax is added.

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And that brand new car you want will cost[br]you more than what the invoice says

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after you pay the state to own it.

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All these pieces should be considerations[br]when you're budgeting.

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When in doubt consult a tax professional[br]to help you navigate through all the laws.