WEBVTT

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

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The government gets its money
by taxing its people.

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Taxes pay for all sorts of government
jobs and services.

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

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federal judges, and the military.

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State taxes pay 
for local roads and the governor.

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

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

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So, as much as we don't like paying taxes
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 
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
of this as a tax.

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Payroll withholdings are taken out
of an employee's paycheck

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every time payroll is run.

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There are federal, state, and sometimes
even local taxes.

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Withholding taxes are payroll taxes
where the employer withholds a percentage

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

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Employer taxes are payroll taxes
that are paid by the employer only.

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Some payroll taxes like Medicare 
and Social Security are shared taxes

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that are split between the employer
and employee.

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Employers are responsible for payroll
taxes for their employees;

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

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

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

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The amount after payroll taxes and other
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
is the social security tax.

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This tax is meant to help people
when they retire.

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

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

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Medicare tax comes out
of your paycheck too.

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

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

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In addition,
to the payroll taxes we talked about.

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Employers must pay an unemployment tax
for each individual

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that works at the company.

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This is called state and federal
unemployment taxes.

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

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Income tax is what's called
a progressive tax.

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

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

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

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

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

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not to worry about putting food
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
someone makes on their job.

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

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Federal rates can be anywhere
from 0% to 39.6%

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and state rates run from 0% to 13.3%
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
by April 15.

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All the money you make during the year
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,
that's income.

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

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

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

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

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

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

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

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And again each year based on the value
of the item.

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

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

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

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Every time you buy something at a store
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
on where you shop, and what you buy.

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Businesses also have to pay
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
tariffs on imports, gift taxes,

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estate taxes, and unemployment taxes.

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If this isn't enough
to make your head spin

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don't worry, the current tax code
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
and tax programs to help us file our taxes

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each year.

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

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

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

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And that brand new car you want will cost
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
when you're budgeting.

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