Tax Exemptions Exemptions allow people to take money out of their paychecks for specific uses before the income is taxed. These deductions are generally handled through the employer. Examples include: Flexible Spending Accounts. A few thousand dollars a year can be held back from your paycheck to pay for essential items such public transportation to and from work, and medical expenses. Individual Retirement Account Contributions. Under this exemption, you can put aside a certain amount of money for retirement without paying taxes on it. For example, the 2014 limit was $5, 500. Example: A single person earns $40,000 a year. Each month their employer takes out $200 and puts it into a retirement account a year). The employer also takes out $50 a month for transportation ($600 a year). This reduces the amount of income counted towards taxes by $3, 000 The employee can still spend the $50 on bus or train tickets for their commute, but the earnings do not count as income for tax purposes. Look back to the tax chart on page 59. a) What percent would the person originally have paid in taxes? b) After the tax exemptions, what percent does the person pay in taxes now? 76 Economics Unit 4 section3 Taxes in the United States The Constitution originally did not include permission for the federal government to levy (impose) direct taxes on individual citizens. To corect this, the sixteenth amendment was proposed and ratified on February 25, 1913, giving Congress the power to tax incomes "from whatever source derived." Despite being absent from the constitution, the first income tax was actually levied almost fifty-one years earlier by an act of Congress on July 1, 1862. It was imposed as civil war broke out in the U.S. The Civil War income tax was the first tax paid on individual incomes by residents of the United States, Passed as an emergency measure to finance the Union cause in the Civil War, the first income tax generated approximately $55 million in government revenues during the war a huge amount at that time. Paying the taxes was viewed as part of the patriotic war effort. Below is a political cartoon about federal income tax extended after the civil war. What was the cartoonist's opinion of the income tax? How do you know? I think the Cartoonist's Opinion of the income tax is collecting taxes from people How do I know is congress reduced income tax rates and then finally abandoned the income tax altogether in 1872 59
Tax Exemptions Exemptions allow people to take money out of their paychecks for specific uses before the income is taxed. These deductions are generally handled through the employer. Examples include: Flexible Spending Accounts. A few thousand dollars a year can be held back from your paycheck to pay for essential items such public transportation to and from work, and medical expenses. Individual Retirement Account Contributions. Under this exemption, you can put aside a certain amount of money for retirement without paying taxes on it. For example, the 2014 limit was $5, 500. Example: A single person earns $40,000 a year. Each month their employer takes out $200 and puts it into a retirement account a year). The employer also takes out $50 a month for transportation ($600 a year). This reduces the amount of income counted towards taxes by $3, 000 The employee can still spend the $50 on bus or train tickets for their commute, but the earnings do not count as income for tax purposes. Look back to the tax chart on page 59. a) What percent would the person originally have paid in taxes? b) After the tax exemptions, what percent does the person pay in taxes now? 76 Economics Unit 4 section3 Taxes in the United States The Constitution originally did not include permission for the federal government to levy (impose) direct taxes on individual citizens. To corect this, the sixteenth amendment was proposed and ratified on February 25, 1913, giving Congress the power to tax incomes "from whatever source derived." Despite being absent from the constitution, the first income tax was actually levied almost fifty-one years earlier by an act of Congress on July 1, 1862. It was imposed as civil war broke out in the U.S. The Civil War income tax was the first tax paid on individual incomes by residents of the United States, Passed as an emergency measure to finance the Union cause in the Civil War, the first income tax generated approximately $55 million in government revenues during the war a huge amount at that time. Paying the taxes was viewed as part of the patriotic war effort. Below is a political cartoon about federal income tax extended after the civil war. What was the cartoonist's opinion of the income tax? How do you know? I think the Cartoonist's Opinion of the income tax is collecting taxes from people How do I know is congress reduced income tax rates and then finally abandoned the income tax altogether in 1872 59
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