OVERVIEW
Income taxes fund government services. Your employer withholds taxes from your wages and pays the government on your behalf.
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Video transcript:
Income taxes fund government services. Your employer withholds taxes from your wages and pays the government on your behalf.
When you start a job, your employer gives you a W-4 form. To lower how much tax is taken out of your paycheck, you can claim exemptions for dependents, or you can claim an exemption as the head of the household.
Each January, your employer sends a W-2 form reporting your total taxes withheld. When you file your tax return, you can take deductions or claim credits for eligible personal expenditures that your employer doesn't factor into your withholding (only through 2017).
Deductions repay a percentage of expenses incurred for things such as medical bills and charitable donations. They can be listed individually (called itemizing), or you can take the standard deduction computed for you by the IRS.
Credits reduce your taxes dollar for dollar. A credit worth $3,000 takes $3,000 right off your tax bill.
After you take your deductions and credits, you're taxed on the income that remains. If too little was withheld, you'll owe tax on April 15th. If too much was withheld, you'll get a refund.
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