Financial Literacy

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Let’s Learn!

I can explain the different types of taxes, the difference
between gross income and net income, and how taxes

affect net income.

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Let’s review our vocabulary.

Tax

An amount of money
the government
requires an individual
to pay.

Income

Money received from
goods and services.

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Guiding Question:

What are the different types of taxes and how do

taxes affect net income?

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What are the different types of taxes that we pay?

We will start by creating a graphic organizer to record the types of taxes that we pay. Create
this table in your math notebook.

Let’s start by looking at income tax.

Tax

Definition

Picture

Income Tax

Payroll Tax

Property Tax

Sales Tax

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What is income tax?

In your math journal, add the information about income tax.

Let’s look at payroll tax.

A tax paid by an
employee or a business.
It is shown as a federal
or state withholding on
a paystub.

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What is payroll tax?

Add the information to your math journal.

Let’s look at property tax.

Income tax and other
taxes that an employer
is required to deduct
from an employee’s
gross income. It is paid
by the employer.

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What is property tax?

Add the information to your math journal.

Let’s look at sales tax.

Tax paid to the local
government on the
value of property owned
by an individual. It is
paid by the owner.

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What is sales tax?

Add the information to your math journal.

How do these taxes affect our income?

An amount of money
that is added to the cost
of goods and services
purchased. This tax is
based upon the cost of
the items purchased.

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How do these taxes affect our income?

We can see that these taxes decrease the amount of money we get paid in each paycheck.

To understand how taxes affect income, we need to understand the difference between
gross income and net income.

Gross Income

An individual’s total income before taxes or other
deductions are taken out.

Net Income

The amount of money remaining after taxes and
other deductions are subtracted from one’s gross
income.

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Look at the math story and answer the questions.

Carlos works 18 hours at the local
grocery store. He earns $10 an hour. He
pays $27.50 in income tax and $13.75 in
payroll taxes.

What is his gross income?

What is his net income?

What is this story about?
Carlos works at a local grocery store to make
money.

What do I need to find out?
I need to find out his gross income and his net
income.

What do I know?
Carlos works 18 hours for $10 an hour. He pays
$27.50 and $13.75 in taxes.

Next Step(s):
1.Find the gross income by multiplying the
number of hours worked by the money made
per hour.

2.Add the taxes together and subtract them from
the gross income.

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Let’s solve the problem.

Carlos works 18 hours at the local
grocery store. He earns $10 an hour. He
pays $27.50 in income tax and $13.75 in
payroll taxes.

What is his gross income?

What is his net income?

Let’s determine Carlos’ gross income.

g = 18 x $10

g = $180

Carlos’ gross income is $180.

We can determine Carlos’ net income.

Net Income = Gross Income - Taxes

n = $180 - ($27.50 + $13.75)

n = $180.00 - 41.25

n = $138.75

Carlos’ net income is $138.75.

Multiple Choice

What is the amount of money the government requires individuals to pay?

• income

• taxes

• gross income

• net income

Multiple Choice

What is money received for goods or services?

• income

• taxes

• gross income

• net income

Multiple Choice

What is the total income before taxes are deducted?

• income

• taxes

• gross income

• net income

Multiple Choice

What is the total income after taxes are deducted?

• income

• taxes

• gross income

• net income

Fill in the Blanks

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Your Turn!

Go to the “Let’s Practice” activitynext.