Scott: What is up? I am your host Scott Evans. And today is a big day for millions of Americans. That is right, it is tax day! But what does that really mean? Well, I took to the streets of New York City to see who knows what. So, are ready you to play Tax Facts? Remember, the winners of this game could get a cash prize! You heard me. Alright, question number one.
What is the day of the year every year when taxes are due?
Teen 1: I don’t know.
Teen 2: January
Teen 3: January
Teen 4: April something?
Liz: April 14th. 15th…15th!
Scott: That is right! Tax day, the deadline on all Americans to file all the paperwork for their income tax – that is the tax on the money you make – is today, April 15th.
Now, the next question should be a little easier.
What government organization collects taxes?
Teen 1: IRS
Teen 2: IRS
Teen 3: IRS
Scott: What does the IRS stand for?
Teen 1: I don’t know.
Teen 2: I forgot.
Teen 3: Income?
Teen 4: I think International… I don’t know the rest though.
Teen 5: Revenue Summary? Summerizers.
Hannah: Internal Revenue Service.
Scott: Well, that one was supposed to be easier. Now, the IRS, or the Internal Revenue Service, is the government agency responsible for collecting federal taxes. And last year, the IRS collected nearly $1.4 trillion in income tax. And nearly 40% of our government spending is paid for by income taxes, including building national highways, defense spending, space exploration and aid to foreign countries. Congress passed the first income tax law in 1862 to help pay for the Civil War.
Alright, next question.
At what age do you start paying taxes?
Teen 1: When you’re born. I don’t know.
Scott: When you do start paying income tax?
Teen 2: Income tax is when you turn 18. Either when you turn 18 or when you get your first job.
Scott: That is kind of a trick question. It doesn’t matter how old you are, if you have ever bought something, then you have paid sales tax. But as far as income tax, if you have made more than $5,950 in a year, then you have to file an income tax return. No matter how old or young you are.
So, what determines the amount of income tax you pay?
Teen 1: The amount that you make.
Scott: Our federal income tax system is based on a progressive tax. Which means the more money you make, the more money you pay in taxes. For example if you make about $35,000 a year, on average you will pay about 15% in federal income tax. But if you make more than ten times that, you are in the highest bracket and could pay 35%.
Now, who is ready for the bonus round?
What does the term withholding mean?
Hannah: That’s not taxed. That’s what is not being taxed.
Lizz: That’s what they are withholding from you. That is what they are taking in taxes.
Scott: That is actually right. Many teens are surprised when they get their first paycheck and wonder, ‘where did all my money go?’ But businesses withhold money for your taxes. So, take your pay, then subtract your income tax, then a social security tax which goes towards money paid out when you retire, and a Medicare tax which goes towards health care for elderly and disabled. And that is all part of withholding and the reason your check ends up much smaller than when it starts. And it is also a good reason to file a tax return – I mean, besides the fact that it is a federal law and if you don’t you could go to jail. But if your employer withholds more than your share of taxes, you could get a government refund. And I mean, I did say there could be a cash prize for the winners of this game.