VCEE Scope & Sequence EPF Unit 14 : simplebooklet.com

UNIT 14 – TAXES (7 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away. 2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Governments provide a means to obtain goods and services that the marketplace operatingwithout government would not provide. In order to provide goods and services, governments taxtheir citizens. Students need to understand their tax obligations and how income, sales,personal property, real property, and estate taxes affect them, as well as the deductions andcredits available to them.EPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 Why should citizens pay taxes – what’s in it for us?EPF.15 The student will demonstrate knowledge of income earning and reporting byc) calculating net paye) completing a standard W-4 formEFP.16 The student will demonstrate knowledge of taxes bye) explaining the content and purpose of a standard W-2 form.Day 1 Gross pay, withholding, and net payEFP.16 The student will demonstrate knowledge of taxes byd) examining potential tax deductions and credits on a tax return.Day 1 Tax deductions and tax creditsDay 2 Completing a 1040 EZ and determining your tax bracket and average tax rateEFP.16 The student will demonstrate knowledge of taxes byc) computing local taxes on products and services.Day 1 Computing local taxesEFP.16 The student will demonstrate knowledge of taxes byf) explaining the similarities and differences between state and federal taxation ofinheritances.Day 1 Inheritance and estate taxes - what’s the difference?1Virginia Council on Economic Education

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EPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 - Why should citizens pay taxes – what’s in it for us?Content KnowledgePolitical rhetoric can obscure the fact that without taxes, many essential government functionscannot operate. At this juncture it is useful to remind students of what they learned in Unit 7about the role of government in a market economy, and reinforce that learning with concreteexamples from local, state, and national government.Teaching Tips1) The teacher may want to review the material from Unit 7 in preparation for this day’s lesson.2) Have the students brainstorm local, state, and national functions of government and what isneeded to accomplish those functions. For example, local police protection requires squad cars,gas, mechanical services, employment of officers, desks, a building to house the policedepartment, utilities for that building, employment of dispatchers, etc. At the state level, lawenforcement requires laboratories, employment of forensic experts and laboratory personnel,buildings in which to carry out those functions, employment of state troopers to be able to pursuecriminals beyond the limits of the local jurisdiction, cars for them, etc. At the national level, theFBI enables the pursuit of criminals across state lines, and it requires many of the same kinds ofitems and employees. The same could be done for education, courts, etc.The teacher may want to distribute a schema in which students can note particulars needed ateach of the local, state, and national level for any of a variety of government functions.3) Ask: Which of these functions can be fulfilled by private enterprises? Why will some ofthese functions not be fulfilled in the absence of funding to the government? Review the role ofincentives. Ask: What is the primary incentive in a market system? (Profit.) Can privateenterprises profitably fulfill all of the functions that we ordinarily ask government to fulfill?(Private entities can fulfill some of the functions – for example, private schools – but not all ofthem. Private schools provide education for the children of people with middle and upperincomes, but not the level of education that we find desirable for society as a whole includinglower income families. Private roads and airports are possible in some cases, but the greatexpense of construction and maintenance in most cases of long distance roads and large airportscan’t practically be recaptured in fees charged to those using the roads and airports. Nationaldefense can only be provided through government, because there is no workable way for privateenterprises to extract payment from people who are benefited but who would not voluntarily3Virginia Council on Economic Education

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pay.) Because many of these functions can’t profitably be performed by private enterprises, weseek fulfillment of many functions from government. For government to be able to fulfill thesefunctions, citizens must pay taxes.4) The teacher may wish to use one of the activities from the first three lessons below, which aredirected at demonstrating the concept of public goods. The fourth lesson includes a game thatstudents can use as a review of the types of taxes and where the revenue is used.Lessons and ResourcesEconomics in Action Lesson 5: The Role of Government in a Market EconomyFocus: High School Economics Lesson 11: Public Goods and ServicesOld McDonald to Uncle Sam: Lesson Plans from Writers Around the World Lesson 6: PublicGoods and ServicesEconEdLink Lesson: Tic Tac Taxes https://www.econedlink.org/resources/tic-tac-taxes/4Virginia Council on Economic Education

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EPF.15 The student will demonstrate knowledge of income earning and reporting byc) calculating net paye) completing a standard W-4 formDay 1 – Gross pay, withholding and net payContent KnowledgeIt is important to understand what deductions (mandatory or voluntary) are, or may be, takenfrom your gross pay in order to determine your “take home pay.” By properly calculatingdeductions, an individual can avoid over-withholding, which results in an income tax refund, orunder-withholding, which results in owing additional income taxes.Employers are compelled by law to require their employees to complete W-4 forms. Employeesuse the Form W-4 to report allowances and filing status to their employer. The numbers yousubmit will be used by your employer to determine your withholding amounts for Federalincome tax only. Social Security and Medicare are calculated as flat percentages and are notaffected by your filing status. Employers use the W-2 to report annual wages paid to theiremployees. If you have more than one job, you will receive one W-2 per employer. The numbersin those boxes are used by your tax preparer to determine your tax liabilityVocabularyChildcare Reimbursement – Deductions from gross pay to fund accounts to help employeespay for childcare.Federal Insurance Contributions Act (FICA) – Deductions from gross wages or salaries tofund contributions to Social Security benefits.Federal Withholding Tax – Deductions from gross pay for federal income tax payments.Insurance – Deductions from gross pay for various types of insurance (health, dental, life, etc.)Medical Reimbursement – Deductions made from gross pay to fund accounts that allowemployees to us “pre-tax” dollars to pay for certain medical expenses like co-pays andpharmaceuticals.Retirement – Deductions made from gross pay to fund employee retirement accounts.Savings – Deductions made from gross pay to fund other savings plans, including the purchaseof savings bonds.State Withholding Tax – Deductions from gross pay for state income tax payments.W-2 – A federal income tax document that employers complete and send to their employees andto the Internal Revenue Service at the end of a year; shows employee compensation and taxeswithheld.W-4 – A federal income tax document that instructs an employer about how much money towithhold from an employee's paycheck for tax purposes.Virginia Board of Education Framework5Virginia Council on Economic Education

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EPF 15c: Gross pay is total money earned before deductions.EPF 15e: The information provided on the W-4 form determines how much is withheld fromone’s gross pay.EPF 16e: The W-2 form is issued by employers and is an end-of-year summary of one’s grosstaxable income and withholdings.It is required by the Internal Revenue Service and included when individuals file their incometax returns.Some deductions are required; some may be voluntary.Net pay results when deductions such as the following are subtracted from gross pay:● Federal Insurance Contributions Act (FICA) contributions● State and federal taxes● Insurance● Savings● Retirement● Medical reimbursement (pre-tax deduction)● Child care reimbursement (pre-tax deduction)Teaching Tips1) It is recommended that the teacher go through these activities in this order – W-4 (setting upwithholding), the pay stub (for example, handout 2.1 from the It’s Your Paycheck curriculum),and W-2 (the yearly totals). Prepare a worksheet for students to use to calculate the savings fromusing pre-tax dollars for medical or child care reimbursement.2) The teacher should have W-4 forms available to distribute to the class. Guide students throughthe process of completing the form. Make sure they understand the purpose of the W-4 form andits effect on one’s pay. Ask them to explain why the federal and state income tax systems requirewithholding. (It makes tax collection much easier for governments.)3) Explain gross and net pay. Go through the deductions from gross pay shown on the pay stubto determine net pay. Exercise 7.1 from the Financial Fitness lesson below provides some usefulcharts summarizing mandatory and voluntary deductions.4) Explain why a taxpayer would want to make voluntary payments using pre-tax dollars.Exercise 7.2 from the same Financial Fitness lesson addresses such tax saving strategies. Havestudents calculate the savings from using medical or childcare reimbursement funding frompre-tax dollars, using the workshop you have prepared.5) Once students have a grasp of the deductions, provide an example of a W-2 form and workthrough it with the students.6Virginia Council on Economic Education

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EFP.16 The student will demonstrate knowledge of taxes bye) explaining the content and purpose of a standard W-2 form.Day 1 – Tax deductions and tax creditsContent KnowledgePeople respond to the tax systems’ incentives by making charitable contributions, buying homes,obtaining higher education, and making improvements that save energy. Responding to theseincentives can make a large difference in the amount of income tax one pays.Tax deductions are subtracted from income on a tax form, to arrive at taxable income. Taxcredits are subtracted from the tax owed, directly reducing the amount of tax payable.Virginia Board of Education FrameworkA tax deduction is a reduction in one’s taxable income. Some examples of tax deductions include•local taxes paid•student loans•charitable contributions•interest paid on home mortgage.A tax credit is a reduction of the tax itself. Tax credits may result from the purchase of, forexample, energy-saving vehicles and appliancesTeaching Tips1) Explain the difference between tax credits and tax deductions on a tax form. Provide copiesof a 1040 EZ form and a standard form 1040. Have enough tax forms and instructions that eachstudent can read the instructions and see how the credits and deductions function.2) Contrast the simplicity of the 1040 EZ form, which provides for certain tax credits butminimal deductions, with the 1040, which provides for a much wider variety of deductions aswell as credits. Introduce the difference between itemizing and taking a standard deduction.3) Provide copies of the state tax form and instructions. Review the credits and deductionsavailable under Virginia law.4) Ask students to speculate on why the tax codes provide these particular deductions andcredits. (To provide incentives to get more education, to donate to charity, to save energy, etc.)Lessons and ResourcesCapstone Unit 5, Lesson 29: Can taxes be incentives?8Virginia Council on Economic Education

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EFP.16 The student will demonstrate knowledge of taxes byd) examining potential tax deductions and credits on a tax return.Day 2 – Completing a 1040EZ and determining your tax bracketand average tax rateContent KnowledgeCompleting a 1040EZ tax form will solidify students’ understanding of the income taxationprocess, credits and deductions.The fairness or unfairness of our federal income tax system is a subject of ongoing publicdiscussion. Understanding one’s average tax rate, and how it differs from one’s top marginal taxbracket, is important information for participating as a citizen in public discussions of tax policy.Teaching Tips1) Guide the students through completing a sample 1040 EZ income tax form, based on theinformation provided in the W-2. Then have the students complete Exercise 7.3 on Jack’s W-2and 1040EZ from the Financial Fitness lesson below.2) Explain the difference between one’s top marginal tax bracket, and one’s average (sometimesreferred as “effective”) tax rate. Exercise 7.2 from the Financial Fitness lesson below, addressestax bracket and average tax rate. Provide a problem set for students to use to determine taxbrackets and average tax rates.3) The teacher may wish to locate and assign current news articles involving tax brackets andeffective tax rates, such as the example provided below.Lessons and ResourcesFinancial Fitness for Life 9-12 Lesson 7: Uncle Sam Takes a Bite, exercise 7.2, Tax savingstrategies, and exercise 7.3, Is it better to get a tax refund, or to have fewer taxes withheld?Preparing Your Form 1040https://www.econedlink.org/resources/preparing-a-1040ez-income-tax-form/1040 EZ forms and instructions:http://www.irs.gov/pub/irs-pdf/f1040ez.pdfReading10Virginia Council on Economic Education

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EFP.16 The student will demonstrate knowledge of taxes byc) computing local taxes on products and services.Day 1 - Computing local taxesContent KnowledgeIn planning spending, students need to know that in the United States, quoted prices ordinarilydo not include sales taxes, and to be able to calculate the tax depending on where the goods orservices are purchased. Understanding why additional taxes are added to some items but not toother items, gives students an economic perspective on taxes. Students also need to understandthat they will be responsible for real and personal property taxes, to the extent that they own suchproperty.Virginia Board of Education FrameworkEPF 16a: Most state and local government revenue comes from sales taxes, grants from thefederal government, personal income taxes, and property taxes.EPF 16c: Sales taxes are collected on the sale of most goods and services.A base sales tax may be established by a state, and a locality may add additional sales taxes (e.g.,meals tax).Teaching Tips1) The teacher will want to collect information on the sales tax and real and personal property taxrates for their locality and for nearby counties, cities, and states. What is the base sales tax rate?Are there meals or lodging tax rates that apply in addition? What personal property is taxed?How are real property taxes assessed? A problem set should be prepared for students to use incalculating real and personal property taxes.2) Provide students with information on sales taxes. Ask: What are some reasons why mealsand lodging may have additional taxation? Do they fall primarily on local residents, or onpeople from outside the locality? (These taxes are often enacted as a means to collect revenuefrom outsiders. People would rather tax others than themselves. However, as the culture hasmoved towards more eating out, meals taxes are increasingly affecting local residents.)3) Explain personal property tax and real property tax and lead students through samplecalculations. Have students practice calculating these taxes using the problem set the teacher hasprepared.Lessons and ResourcesFinancial Fitness for Life: Grades 6-8 Theme 3: Lesson 9: What Taxes Affect You?12Virginia Council on Economic Education

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EFP.16 The student will demonstrate knowledge of taxes byf) explaining the similarities and differences between state and federal taxation ofinheritances.Day 1 - Inheritance and estate taxes – what’s the difference?Content KnowledgeWhile both estate and inheritance taxes refer to taxes that come into effect upon someone’s deathand the distribution of their property, federal estate taxes are payable by the estate and not by theperson receiving the property. In some states, inheritance taxes are owed by the person whoreceives property from an estate. An understanding of these taxes is important in planning one’sestate.VocabularyBequest – the process of giving stocks, bonds, or any other assets to beneficiaries through theprovisions of a will.Distribution – the bequest of assets to heirs and the settlement of estate taxes.Estate – All of the valuable things an individual owns, such as real estate, art collections,collectibles, antiques, jewelry, investments, and life insurance.Estate planning – The collection of preparation tasks that serve to manage an individual’s assetbase in the event of their incapacitation or death, including the bequest of assets to heirs and thesettlement of estate taxes. Most estate plans are set up with the help of an attorney experiencedin estate law.Inheritance – All or part of a person’s estate/assets that is given to an heir once the person isdeceased.Probate – The legal process in which a will is reviewed to determine whether it is valid andauthentic. Probate also refers to the general administering of a deceased person’s will or theestate of a deceased person without a will.Virginia Department of Education FrameworkEstate planning involves decisions regarding wills, trusts, and joint tenancy and seeks toaccomplish the following:•To state how a person wants his or her estate distributed after death•To appoint the person who should distribute the estate•To record other information, such as one's wishes regarding care of minor children•To avoid probate, or to reduce taxes or other costs.Current state and federal taxes must be considered when planning an estate (e.g., estate taxes,inheritance taxes, death taxes, gift taxes, federal/state income taxes) and any deductions andexemptions that apply to such taxes.14Virginia Council on Economic Education

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Estates exceeding the exempt amount are taxed by the federal government. The tax applies to thedecedent’s gross estate, with a large portion of the estate exempted by a tax credit.Inheritance tax is levied on gifts and bequests received by a taxpayer. Taxes vary based on theproperty inherited and the relationship of the inheritor to the decedent.Teaching Tips1) The teacher will need to be sure s/he has up to date information, as the federal estate tax hasbeen in flux recently. For 2012, estates worth five million dollars or less are exempt from federalestate tax. For larger estates, an estate tax rate of 35% applies.2) Explain the difference between estate tax (paid from the funds of an estate, before it isdistributed) and inheritance tax (paid from the funds inherited). Explain that some object tothese taxes especially to the extent that they affect estates that have valuable real propertywithout sufficient other assets to pay the tax, causing the heirs to have to sell the real estate inorder to pay the tax.3) Explain that several states have inheritance taxes, but not Virginia. However a Virginiaresident inheriting property from another state could be affected.4) Ask: Who should be consulted with respect to estate tax matters, or other complicated taxmatters? (A certified public accountant.) Who should be consulted about how to leave one’sproperty after death? (An attorney who handles wills and estates).Lessons and ResourcesFinancial Fitness for Life, These 2, Lesson 7 - Uncle Sam Takes a Bite.Estate tax extension through 2012http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2010/12/estate-tax-extension-through-2012-nudging-mama-off-the-train-in-two-years.htmlMcGuire Woods State Death Tax Chart Revised Jan. 3, 2012http://media.mcguirewoods.com/publications/State-Death-Tax-Chart.pdfState laws: Estate taxeshttp://estate.findlaw.com/estate-planning/estate-planning-law/estate-planning-law-state-taxes.html15Virginia Council on Economic Education

VCEE Scope & Sequence EPF Unit 14

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