Taxes: lesson plans
How your paycheck gets taxed, and the accounts that cut the bill. 12 lessons, about 45 minutes each, in the order students should take them.
- 1
How do taxes work?
Most workers pay income tax, Social Security, Medicare and sales tax. Paychecks prepay it, and a yearly return settles the total.
Students will be able to
- Income tax and payroll tax are different taxes.
- Withholding is a prepayment, not the final bill.
- Self-employed workers pay both payroll halves.
45-minute plan
- Warm-up (5 min): is this true? "I pay my taxes in April when I file my return."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Pull up your latest pay stub and find four lines: federal income tax, state income tax, Social Security and Medicare. Check that Social Security is 6.2% and Medicare is 1.45% of your gross pay.
- 2
How do tax brackets work?
Each tax rate applies only to the income inside its bracket, so your overall rate is lower than your top rate.
Students will be able to
- Each rate taxes only its own slice.
- Your effective rate is lower than your bracket.
- A raise never lowers your take-home pay.
45-minute plan
- Warm-up (5 min): is this true? "A raise could bump me into a higher bracket and lower my pay."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Find last year's tax return. Divide the total tax line by your total income to get your effective rate, then look up which bracket your taxable income landed in. Write both numbers down.
- 3
How do you fill out a W-4?
Fill in Step 1 and sign Step 5. Use Steps 2 to 4 only for two jobs, kids, other income or deductions.
Students will be able to
- Steps 1 and 5 are the only required ones.
- Two jobs means Step 2, on one form.
- Kids lower withholding in Step 3.
45-minute plan
- Warm-up (5 min): is this true? "Claiming zero on my W-4 is the safe choice."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Open your latest pay stub and find the federal income tax line. If you have two jobs, a working spouse or kids, run the IRS Tax Withholding Estimator and give payroll the W-4 it produces.
Worksheet and answer keyOpen the lessonFederal income tax calculator
- 4
Is a big tax refund a good thing?
A refund is your own money paid in too early. Adjust your W-4 to keep more of it in each paycheck.
Students will be able to
- A refund is money you overpaid.
- Your W-4 sets how much is withheld.
- Aim for a small refund or bill.
45-minute plan
- Warm-up (5 min): is this true? "A big tax refund is a nice bonus from the government."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Open the IRS Tax Withholding Estimator with your latest pay stub and last year's return. If it shows a refund or bill of more than a few hundred dollars, print the new W-4 it fills in and hand it to payroll.
- 5
Should you take the standard deduction or itemize?
Add up your itemized deductions. If the total beats your standard deduction, itemize. If not, take the standard deduction.
Students will be able to
- You take one, never both.
- State and local taxes are capped.
- Some deductions work either way.
45-minute plan
- Warm-up (5 min): is this true? "Owning a home means I should itemize."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Find last year's mortgage interest statement, property tax bill and state tax total. Add them with your charity gifts and compare the sum with your standard deduction. Write the gap down so you know where you stand.
Worksheet and answer keyOpen the lessonFederal income tax calculator
- 6
What is the difference between a tax credit and a deduction?
A deduction saves its amount times your tax rate. A credit saves its full amount, dollar for dollar.
Students will be able to
- A deduction is worth amount times your rate.
- A credit is worth its full amount.
- Refundable credits can pay you money.
45-minute plan
- Warm-up (5 min): is this true? "A $1,000 tax deduction means $1,000 back in my pocket."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Look at line 16 of last year's Form 1040 (your tax before credits) and the credits on lines 19 and 20. Then use the IRS Interactive Tax Assistant to check two credits you didn't claim, like the EITC or the saver's credit.
Worksheet and answer keyOpen the lessonFederal income tax calculator
- 7
Do you qualify for the Earned Income Tax Credit?
If you work and earn under about $51,593 with one child, check the EITC. It can mean thousands back.
Students will be able to
- You need earned income from work.
- More children means a bigger maximum.
- You must file a return to get it.
45-minute plan
- Warm-up (5 min): is this true? "The EITC is only for people with kids."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Open the IRS EITC Qualification Assistant and answer its questions using last year's income. If you qualified and didn't claim it in any of the last three years, book a free VITA appointment to file for those years.
- 8
How much is the child tax credit?
Up to $2,200 per child under 17, with up to $1,700 per child refundable, for families under the income limits.
Students will be able to
- The child must be under 17.
- Part of it is refundable.
- It shrinks above $200,000 of income.
45-minute plan
- Warm-up (5 min): is this true? "If I don't owe any tax, I can't get the child tax credit."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Check that each child under 17 has a Social Security number valid for work, and that yours is too. Then look at Step 3 of your W-4. If it doesn't list your children, give payroll a new W-4.
Worksheet and answer keyOpen the lessonFederal income tax calculator
- 9
What is an HSA and how does it work?
An HSA lets people with a high-deductible health plan save for medical costs with no tax going in, growing or coming out.
Students will be able to
- You need a high-deductible health plan.
- The tax break works three ways.
- The money is yours to keep.
45-minute plan
- Warm-up (5 min): is this true? "If I don't spend my HSA money by December, I lose it."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Check whether your health plan is HSA-eligible in your benefits portal or plan documents. If it is, set a payroll contribution for this year, even $50 a paycheck, and make a folder for medical receipts.
Worksheet and answer keyOpen the lessonCompound growth calculator
- 10
How much is capital gains tax?
You pay tax only on the profit when you sell. Holding over 1 year usually drops the rate to 0% or 15%.
Students will be able to
- You are taxed on profit, not the sale.
- Holding more than 1 year lowers the rate.
- Losses can cancel out gains.
45-minute plan
- Warm-up (5 min): is this true? "If I sell my shares, the government takes a big cut of the whole amount."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Log in to your brokerage account and open the cost basis or unrealized gains page. For anything you might sell this year, note the purchase date and the gain, and mark which lots turn long-term soon.
- 11
How can I file my taxes for free?
Start at IRS.gov/freefile. If your AGI is under the limit, partner software files your federal return free.
Students will be able to
- Free File depends on your AGI.
- Always start at IRS.gov/freefile.
- Fillable Forms are free at any income.
45-minute plan
- Warm-up (5 min): is this true? "The free tax software ads are a trick, so I have to pay to file."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): Find last year's Form 1040 and write down the line labeled adjusted gross income. Then bookmark IRS.gov/freefile and the VITA site locator so you are ready when your forms arrive.
- 12
What to do if you owe taxes and can't pay
File on time even if you can't pay, then ask the IRS for a payment plan. Not filing costs far more.
Students will be able to
- Always file on time, even unpaid.
- Short-term plans have no setup fee.
- Interest keeps running until it's paid.
45-minute plan
- Warm-up (5 min): is this true? "If I can't pay, I should wait to file until I have the money."
- Read the lesson together (10 min)
- Work the example on the worksheet (10 min)
- Practice questions (10 min)
- Exit task (10 min): If you owe and can't pay, file your return or extension on time and pay what you can through IRS Direct Pay. Then sign in to your IRS online account and request a short-term or long-term payment plan.
Unit vocabulary
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