Every year, millions of high school students like you hit the
streets looking for summer employment. Some students work in
supermarkets or restaurants, others get a job at the local mall or
elsewhere. But when their first check or pay stub comes in, many are
shocked to discover the large amount of money that is missing. This
money was not misplaced by your employer; it was taken out by the
government as an income tax.
Taxes are, in essence, your contribution of money to keep the
government running and its public services – such as roads, parks and
schools – available. Working for the first time is a way for you to
make spending money during your vacation and can provide you with a
window into how the system works. Check out a the.News video report about some students’ first experiences with summer jobs and paycheck deductions. You can hear from a student in Virginia who worked as a youth counselor, and a group of young artists who worked on inner-city murals in Pittsburgh.
Summer jobs and income taxes
Income taxes are taxes on individuals levied by the federal, state,
and sometimes city governments. The federal income tax is the primary
source of money the government receives, which it uses to fund the
military, build interstate highways, , and provide countless other
services the nation offers. Individual states also take out a small
percentage of your income to also fund various state projects, but most
states primarily receive money from sales taxes. Governments receive
payments from employers, who withhold the taxes deducted from each
employee’s income.
In other words, the money that is taken from you for taxes goes
right back into paying for government operations that benefit citizens
across the country. In a sense, it is like you are “chipping in” a
portion of your pay to help make sure we can build and repair roads,
have protection from a police force and ride trains and buses to
school, or to your summer jobs. The federal government’s budget is
spent mostly on defense and social security (see how it breaks down in this pie chart by The Washington Post).
To explore the budgets of your city or state, take a look at the American Hometowns portal at USA.gov,
where you can find links to your local government’s website. What
specific things do your tax dollars get spent on? How much do your
local councils or state legislatures spend on different services? Does
more revenue go to parks? How about schools and safety?
So while taxes could be seen as your contribution to the working of
the government, the amount that you chip in might be different from how
much your friends or parents do. The amount the federal, state and
local governments take out of your paycheck is based on how much you
make. Most students do not earn very much from part-time wages since
they are also attending school, so only about 10 – 20 percent of your
income will be taken up by taxes.
Another factor that determines how much the government takes is your
tax status. Your tax status is based on whether you have a spouse or
any dependents. Dependents are people – such as children - who rely
solely on your income for basic necessities. The amount of taxes you
pay will be lowered if you have dependents.
When a new employer hires you, you are asked to fill out a W-4 tax
form, which declares your tax status to the federal government.
Wages
Although taxes may come as a surprise for many first-time workers,
in the summer of 2007, many young workers also got a boost in pay.
As part of its military and domestic spending package passed in May
2007, Congress approved the first increase in the federal minimum wage
in almost ten years. It was a stepped increase: the then-current
minimum wage of $5.15 an hour was raised to $5.85 in July and, over the
course of two years, would eventually rise to $7.25 in the summer of
2009.
The federal minimum wage was first established as part of Fair Labor Standards Act of 1938,
a legislation to protect workers from the low pay and “detrimental”
labor practices that were prevalent during the industrial revolution.
It has seen 26 increases in the time since, with the most recent before
this year being in September of 1997, when it reached $5.15 per hour.
However, the relative value of that wage has declined due to inflation
over the past decade.
Chances are, you have worked - or are working a job - that pays the
minimum wage. The Bureau of Labor Statistics reports 1.7 million
workers were earning $5.15 an hour or less in 2006 (the minimum wage
rate does not apply to some jobs, such as restaurant wait staff) .
That’s two percent of the hourly workforce across the country.
Furthermore, about half of minimum wage earners were under 25, and
nearly 75 percent were employed in food preparation and service jobs.
Members of Congress who supported the bill said it would lift the
incomes of 13 million workers, according to a Washington Post report.
Not only would the 5.6 million who earn less than $7.25 per hour be
affected, the 7.4 million who earn slightly more than $7.25 an hour are
likely to see their pay increase as well.
However, those who argue against the bill say the increase could
backfire. They worry that the added expense of paying employees could
cause small businesses to raise prices, limit hiring, cut staff or
reduce healthcare benefits to avoid losing money. They feel tax relief
should be provided to lift the burden.
What do you think?
Are you going to get a summer job? What kind of work would be your
optimal summer job? Did you expect the amount of money the government
took out in taxes? How will the minimum wage increase affect you? How
will it affect businesses where you live? Have you worked a summer job
in the past and, if so, how has it helped you?
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