UNITED STATES TAX
SYSTEM
Standard – Education, Careers, Income
Target
• Describe factors affecting take-home pay
such as tax withholding, benefits, and
plan payroll deductions.
Objectives
• Describe how the progressive tax code,
current tax brackets, and different taxes
between states lead to individuals paying
varying amounts of taxes
• Explore how three factors (your salary, the
state you live in, and the cost of living) can
have a big impact on how much you pay in
taxes and how much you have leftover to
spend on yourself.

WHICH OF THE 9 TYPES OF
TAXES IS THE LARGEST
SOURCE OF REVENUE FOR
THE GOVERNMENT?
WHICH OF THE FOLLOWING
CATEGORIES DO YOU
CURRENTLY PAY TAXES
FOR?
TEST YOUR KNOWLEDGE
WITH THE WORDWALL

HOW DO TAXPAYERS PAY TAXES?
Income Tax
Payroll
Tax
Property Tax
Sales
Tax
Excise
Tax

INCOME TAX
Income tax - tax on
earned and unearned
income
Earned income -
money earned from
working for pay
Unearned income -
income received from
sources other than
employment
Example: Wages and
salaries earned from
employment
Example: Interest earned
from a savings account

COMPONENTS OF INCOME TAX
Federal
income
tax
State
income
tax
Income tax

FEDERAL INCOME TAX
Tax is
determined by?
Paid by? Helps fund?
• Earned and
unearned
income
• Higher
income =
more tax
paid
• Majority of
people
living in the
U.S.
• Operations of
federal
government
• Government
programs
• education
• defense of
the nation
• disaster relief

STATE INCOME TAX
Tax is
determined by?
Paid by? Helps fund?
Does Tennessee have a
state income tax?
• Earned and
unearned
income
• Higher
income =
More tax
paid
• Those living in
states with a
state income tax
• Not all states
have a state
income tax
• Varies by state
• Examples:
• State highways
• Operations of
state
government

PAYROLL TAX
Payroll tax – A tax on earned income that
supports the Social Security and Medicare
programs (also known as FICA)
Tax is
determined by?
Paid by? Helps fund?
• A set
percentage
of earned
income
• Deducted
out of
paycheck
(except for
self-
employed)
• Individuals
who earn
income from
working for
pay
• Employers
• Social Security
program
• Medicare
program

SOCIAL SECURITY & MEDICARE
Payroll Tax Responsibilities
Employer Pays & Employee Pays
• Social Security withholding = 6.2%
• Medicare withholding = 1.45%

WHAT IS SOCIAL SECURITY?
Purpose Tax charged
• Income for:
• Retirees
• People with profound
disability
• Children who have lost a
parent
• A person with children
who has experienced the
death of a spouse
• 6.2% of earned
income

WHAT IS MEDICARE?
Purpose Tax charged
• Helps pay for health care
for senior citizens
• 1.45% of earned income
• No limit

EMPLOYERS ALSO PAY SOCIAL SECURITY AND
MEDICARE
Match their employees tax contributions
Self-employed people pay both the employee and
employer contributions
Employee
contribution:
$100
Employer
contribution:
$100
Employer pays
$200 in payroll
taxes to the
federal
government

THREE TYPES OF TAX
SYSTEMS
WHAT KIND OF TAX SYSTEM
DOES THE UNITED STATES
USE?
EXPLAIN THE MAIN
DIFFERENCES BETWEEN
REGRESSIVE AND PROGRESSIVE
TAX SYSTEMS.
WHAT DO YOU THINK ARE THE
PROS AND CONS OF A
REGRESSIVE TAX SYSTEM?
WATCH THIS VIDEO TO LEARN
ABOUT THE DIFFERENCES BETWEEN
REGRESSIVE, PROPORTIONAL, AND
PROGRESSIVE TAXES.

TAX STRUCTURES
• Proportional
• Each income group has the
same percentage rate of tax
to pay – 10%
• Regressive
• Lower income individuals pay
a greater percentage of their
income in taxes than do the
upper income individuals
• Progressive
• Lower income
individuals pay a lower
percentage of their
income than do the
upper income. As
income increases, so
does the percentage of
taxes paid.

STATE TAX – PROGRESSIVE TAXES

Individual Taxes Paid Taxes as a
Income % of Income
Proportional Taxes
1 $10,000 $1,000 10%
2 $50,000 $5,000 10%
3 $100,000 $10,000 10%
Regressive Taxes
1 $10,000 $500 5%
2 $50,000 $2,000 4%
3 $100,000 $3,000 3%
Progressive Taxes
1 $10,000 $300 3%
2 $50,000 $2,000 4%
3 $100,000 $5,000 5%
Illustration: Proportional, Regressive, & Progressive Taxes
Examples of the 3 Tax Classifications

“Good” taxes
are generally considered to be
progressive
while “Bad” taxes
are considered to be
regressive.

PROPERTY TAX
• Tax on something you own
• Usually expensive like your
house or boat
• $100,000 home
• 5% property tax rate
• 100,000 X .05 = $5,000
property tax

ESTATE TAX
• Tax on inheritance
• Sometimes
called “death tax”
• In US today,
leave $11.70 million
to heirs & pay no
federal estate tax

GIFT TAX

2022 Tax Brackets

MARGINAL TAX RATE
MARGINAL TAX RATE: THE
HIGHEST TAX BRACKET THAT
YOUR TAXABLE INCOME FALLS
IN.
EFFECTIVE TAX RATE: THE
ACTUAL PERCENTAGE OF
YOUR TAXABLE INCOME THAT
YOU END UP PAYING IN
TAXES.

HOW TAX BRACKETS
ACTUALLY WORK
BECAUSE THE U.S. USES A
SPECIFIC TYPE OF TAX SYSTEM
THAT YOU LEARNED ABOUT IN
THE PREVIOUS RESOURCE,
PEOPLE ARE TAXED ON A RATE
SCHEDULE THAT BREAKS DOWN
THEIR INCOME INTO TAX
BRACKETS.