Income taxes can be confusing, but there are a lot of online resources to help us understand them! This lesson takes students through four useful sites, asking them to look for specific information that will broaden their understanding of how income taxes work.
- Identify basic facts about how income taxes work
- Know how to navigate useful websites that contain income tax information
Introduce the lesson by highlighting a point of contrast: Every year, Americans spend more on taxes than they spend on food and clothing, yet many Americans know very little about taxes. Just mention the April 15th due date for IRS filings, and most adults get that deer-in-the-headlights look. It can be confusing and overwhelming to try to figure out what you should be doing as a tax-paying citizen, especially when you consider that U.S. tax code is now over 7 million words long (compared to a measly 1,300 words in the Declaration of Independence). What's an honest American to do? Fortunately, there are some really helpful resources available to help us make sense out of all this. Today you will look at four helpful websites and go on a scavenger hunt, looking for information about income taxes. If you get stuck, just press the 'help' button near most questions; it will tell you specifically where to look to find the answer. When you have finished working with these three sites, not only will you have some great basic information, you will also be familiar with navigating the sea of income tax information!
Internal Revenue Service: main page of the IRS.
Personal Finance Glossary: financial terms on Yahoo Finance.
Tax Basics for Beginners: article on taxable income from salary.com.
Assessment Activity: Tax Time Scavenger Hunt.
Extension Activity: Tax Time Scavenger Hunt Extension Activity.
[Note to Teachers: Students can see the site at the top of the page, and the questions listed with space to type answers to them. The information in parenthesis is where specifically to find the information. When the students have answered all the questions attached to one site, they should be able to print the page with the questions and answers before going on to the next site page. The students are given interactive notepads for the first two sites. Here students can enter in their answers to the questions; then they can print out their answers at the end of each set of questions. The third site is demonstrated as an interactive drag and drop activity; it calls on the students to decide whether the money given is taxable or nontaxable. The answers to the drag and drop are listed below for your reference.]
Have your students answer the questions below , using this site for help: www.irs.gov/.
Where is the closest IRS Taxpayer Assistance Center to where you live? [(IRS Resources - Contact My Local Office) Answer depends on where the student lives.]
What if I owe more than I can pay? [(Individuals - Filing Late Returns - FAQ's) File anyway to avoid extra fees; you can set up an installment plan.]
What happens if I just don't file? [(Individuals - Filing Late Returns - FAQ's) The IRS will file for you; you will probably end up owing more, plus penalties and interest; if it's repeated, you will face additional enforcement measures.]
Let's say I wait tables after school. Are my tips taxable? [(Individuals - Employees - FAQ's - regular tip income) Yes, your tips would be taxable.]
When did the IRS come into existence, and why? [(About IRS - Brief History) The IRS came into existence in 1862; President Lincoln & the U.S. Congress established an income tax to pay for Civil War expenses.]
What was the highest percentage income tax being paid in 1918? Why was it so high? [(About IRS - Brief History) The highest rate was 77 percent. High taxes were used to help finance World War I.]
Look at Forms 1040A and 1040EZ. Which looks easier? Why? [(Site Map - Individuals - 1040 Central) EZ is easier because it is shorter and asks for less information.]
Keep looking at the 1040A and EZ. According to the titles on the forms, who should use each form? [(Site Map - Individuals - 1040 Central) Use EZ if you do not have dependents; use 1040A if you are filing as an individual.]
What's the purpose of a W-4 form? [(Home - Most Requested Forms & Publications - Form W-4) Information from the W-4 form enables your employer to withhold the correct amount of federal income tax from your pay.]
What are the three important qualifications you must meet to be able to file a 1040EZ tax return? [(1040EZ Get Started) You must make less than $100,000, single or filing jointly with spouse, and have no kids in order to file a 1040EZ tax return.]
How much is the standard deduction? [(Popular Tips - Maximize Your Tax Deductions) The standard deduction for a single person is $5,000; The standard deduction for a married person filing jointly is $10,000.]
When should you itemize instead of claiming the standard deduction? [(Popular Tips - Maximize Your Tax Deductions) You should itemize when the total dollar amount of your itemized deductions is greater than the standard deduction.]
- List three itemized deductions you could claim now or in the near future. [(Popular Tips - Maximize Your Tax Deductions) Three possible itemized deductions you could claim now or in the near future are : interest on a mortgage payment, state income taxes, charitable donations.]
Define the following terms in your own words:
Adjusted Gross Income: [Adjusted Gross Income is gross income minus allowable reductions (reductions that you can take whether or not you itemize).]
Asset: [An asset is a piece of property or something else you own.]
Deduction: [A deduction is a dollar amount that is subtracted from income to determine taxable income.]
Dependent: [A dependent is someone who depends on a taxpayer; usually a child.]
Exemption: [An exemption is a type of deduction for yourself or a dependent.]
Gross Income: [Gross income is the total income, or taxable income.]
IRS: [The Internal Revenue Service is a Division of U.S. Treasury Department that is responsible for collecting taxes.]
Itemized Deductions: [Itemized deductions are certain things you can do with your money to deduct some of it from your taxable income: these actions include making charitable contributions, paying interest on home mortgages, and incurring certain medical expenses; to itemize, you must use the long form 1040.]
Joint Return: [Joint returns are tax returns with all tax information for a husband and wife.]
- Standard Deduction: [A standard deduction is a set dollar amount that you do not have to pay taxes on if you claim the standard deduction instead of itemizing.]
Tax Basics for Beginners www.salary.com
What money is taxable and what is nontaxable? Using this site, drag and drop the following descriptions into the correct category: taxable or nontaxable.
Child Support received: [nontaxable]
Childcare at work: [nontaxable]
Dividends on investments: [taxable]
Interest on bank accounts: [taxable]
Lottery & gambling winnings: [taxable]
Most IRA or 401K contributions (retirement accounts): [nontaxable]
Return on invested capital: [nontaxable]
Salary minus money you put into a retirement plan: [taxable]
Severance pay and bonuses from your employer: [taxable]
Unemployment compensation: [taxable]
Refer to the Assessment Activity with this worksheet. There are a couple of things you can do with this, based on what you want your students to get out of the lesson:
1. You can use it as a quiz and take a grade on it.
2. You can tell your students it is a pop quiz and then, instead of grading, it use it as a jumping off point for class discussions about the answers to the questions.
Click here to get the answers to the Assessment Activity worksheet.
If it was not for income taxes, we would not have a lot of the nice things the government provides using tax money, like roads, police, and schools. But enjoying the benefits of taxes does not make them any less confusing. Now you know some basic tax information, and you also are familiar with some sites you can refer to in the future when you need to find out more.
On another day in the computer lab, hand out the Tax Time Scavenger Hunt Extension Activity worksheet that asks students to locate and browse another website that provides tax information. Depending on your students' familiarity with Internet searches, you may want to give them some guideline about how or where to start looking. If your class includes some students who are computer whizzes and some who are not, you might want to put them in small groups for this project. Each person would still be responsible for one site, but they would have one or two classmates to support their search.
“This is a great supplement to the Understanding Taxes for Students that I use with my class at www.irs.gov. Thank you! I will be assigning the quiz and scavenger hunt activities this week.”
“Very good! I will use this one.”
“Great lesson, however, the interactive lesson on taxable and non taxable income would not load. EconEdLink: It should load now. Thank you for the comment.”
“I have been searching the sites above for the answers to the questions provided in parenthesis. I am not having any luck. Can you please tell me an easier way to go about this so it will not be confusing to my students as well? Thanks!”
“This is a great review for my Consumer Economics class once they finish the unit on Income Taxes. Thanks”
“Students have access to the teacher's version therefore they have access to the answers. NOTE from EconEdLink: if you send the students directly to the student version i.e. www.econedlink.org/748 the navigation does not appear thus a little harder to get to the teachers version.”