Biweekly Paycheck and Withholding Statement

Weaver & Higginson 210 Number 2,195,903 Attorneys at Law

Date June 25 19 99

Pay to the order of_

Sara Pena s

586.89

Five Hundred Eighty-Six Dollars and 89/100

THE CENTRAL BANK

. Dollars

5:5555555: 555:55555

Treasurer

PLEASE DETACH AND RETAIN THIS PORTION AS YOUR RECORD OF EARNINGS AND DEDUCTIONS

Date

Pay End

Hrs.

Misc.

Ins.

Gross

Federal

State

City

FICA

Ret.

Bonds

Other

40 01

Understanding Percentages The withholdingstatement attachedto yourpaycheck summarizesmanyof thefederal, state, and local taxes. Federal and state income tax with-holdingsarealwaysshown, asistheFICA(SocialSecurity and medicare)tax.Other withholdingsmayinclude cityincome taxes and voluntary deductions, such as health insurance payments and savings plans. What percentage of this individual's payhas beendeducted from her paycheck?

Property Taxes

The second largest source of revenue for local governments is the property tax-a tax on tangible and intangible possessions such as real estate, buildings, furniture, automobiles, farm animals, stocks, bonds, and bank accounts.

The property tax that raises the most revenue is the tax on real estate. Taxes on other personal property, with the exception of automobiles, is seldom collected because of the problem of valuation. For example, how would the tax assessor-the person who assigns value to property for tax purposes—know the reasonable value of everyone's wedding silver, furniture, coin collections, clothing, and other tangible property items? Instead, most communities find it more efficient to hire one or more individuals to assess the value of a few big-ticket items like buildings, real estate, and motor vehicles.

Other Sources

The third largest source of local revenue is derived from the earnings of public utilities and

CHAPTER 9: SOURCES OF GOVERNMENT REVENUE 241

mill state-owned liquor stores. Figure 9.7 shows that local governments acquired 8.6 percent of their revenues from these sources.

Many towns and cities have their own sales taxes. Merchants collect these taxes right along with the state sales tax, at the point of sale. As indicated in Figure 9.7, sales taxes are the fourth most important source of local government revenues.

Local governments also collect a portion of funds in the form of hospital fees and personal income taxes. In general, the revenue sources available to local governments are much more limited than those available to the state and federal levels of government.

Examining Your Paycheck

Many of the taxes you pay to federal, state, and local governments are deducted directly from your paycheck. By examining the payroll withholding statement—the summary statement attached to a paycheck that summarizes income, tax withholdings, and other deductions—shown in Figure 9.9, we can identify many of the revenue sources described in this chapter.

The worker to whom the check belongs makes $10 an hour and receives a check every two weeks. If the length of the workweek is 40 hours, the worker's gross pay amounts to $800. The worker is single, has no deductions, and lives and works in Kentucky.

According to withholding tables the federal government supplied for that year, biweekly workers making at least $800, but less than $820, have $104.70 withheld from their paychecks. Similar tables for the state of Kentucky specify that $40.01 is withheld for state income taxes. Because these are both estimates, and because even minor differences between the amounts withheld and the amount actually owed can grow, the worker will file state and federal tax returns between January 1 and April 15 of 1998 to settle the differences.

Another deduction is the half-percent city income tax that amounts to $4. Because the amount is relatively small, cities seldom require workers to file separate year-end tax forms.

The federal FICA tax amounts to 7.65 percent (6.20 percent for Social Security and 1.45 percent for medicare) of $800, or $61.20. The FICA is deducted from the gross pay, along with $3.20 in miscellaneous deductions, which leaves the worker with a net pay of $586.89.

If the worker has insurance payments or retirement contributions, purchases savings bonds, or puts money into a credit union, even more deductions will appear on the paycheck.

Iltti*n 3 Assessment

Checking for Understanding

1. Main Idea Using your notes from the graphic organizer activity on page 238, write a definition in your own words of what intergovernmental revenues are.

2. Key Terms Define intergovernmental revenue, property tax, tax assessor, payroll withholding statement.

3. Explain the four major sources of state tax revenues.

4. Explain the difference between state and local revenue systems.

5. List the major types of state, local, and federal taxes reflected on a paycheck.

Applying Economic Concepts 6. Sales Taxes Why do you think sales taxes are applied to food and beverages purchased at restaurants, but not to food and beverages purchased at grocery stores?

'Critical Thinking

7. Drawing Conclusions State and local governments receive revenue from various sources. Which source do you think best satisfies the tax criteria listed in the chapter? Defend your answer.

> Practice and assess key social studies skills with -■' the Glencoe Skillbuilder Interactive Workbook, Level 2.

242 UNIT 3 MACROECONOMICS: INSTITUTIONS

CONTENTS

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