Teaching Income Tax

[updated 12/9/23]

  • How our tax system works and where our taxes go.

  • Visual walkthrough of federal income tax.

  • Practice calculating net pay.

  • Check out my free Calculate Federal and State Income Tax Google Sheet.

  • IRS and EverFI simulations.

  • Use Monopoly to reinforce learning.

The week+ of teaching taxes is usually one of the toughest in my curriculum. The taxes unit brings up a lot of emotions in kids from anger about taxes (usually passed down) to anxiety about the math part since we don’t do a very math heavy curriculum.

It’s easy to get overwhelmed with the amount of things we could be teaching kids and possibly our own lack of understanding of the complexities of the tax system. Our family hires an accountant to do our taxes each year despite the fact that I know more about it than your average person would. Our system is complicated and mistakes can be costly.

I find that coming back to the question of “what do my students need to know about taxes?” is very helpful. They don’t need to be trained accountants at the end of the unit, fully capable of completing a complicated taxing filing. They just need a basic level understanding of why we pay taxes, where our tax money goes, and how our taxes are calculated at a basic level. This allows for them to make educated tax planning decisions, be informed voters when it comes to the fiscal promises of candidates, and to manage their spending/saving to account for the taxes they will owe in a given year.

If you look into the National Standards for Financial Education, the big ones that stand out to me are:

6a: Calculate the amount of taxes a person is likely to pay when given information or data about the person’s sources of income and amount of spending

6b: Identify which level(s) of government typically receive(s) the tax revenue for income taxes, payroll taxes, property taxes, and sales taxes

7c: Differentiate between gross, net, and taxable income

9b: Explain the difference between a tax credit and a tax deduction

Why are we taxed and where do our taxes go?

These are two essential questions to begin with. I find a lot of negative attitudes towards taxes comes from the perception of unfairness, a lack of understanding of what our taxes are used for, a belief that our taxes are misused by the government agencies who spend them. While we can’t erase all of these factors, we can help our students to form more educated opinions about taxes to replace the ones they have been passed down or currently hold from the latest social media video they watched.

I’m a big fan of Two Cents and I’ve championed their work before. They have two videos that I show at the beginning of the unit to get the conversation started and pique interest in learning more about taxes.

Why Do We HATE Paying Taxes?

America has one of the lowest tax rates in the world, and we each enjoy the benefits of our tax dollars every day... so why do we hate paying them so much?

How Do Your Tax Dollars Get Spent?

Remember when you received your first paycheck at your first job and the amount was a little lower than expected? Surprise!

OK… So, How Do We Calculate Income Tax?

Now for the hard part… explaining our tax system! When we talk about income tax, there are two main systems of taxation, ‘flat tax’ and ‘progressive’ or ‘graduated tax’. Both are important to communicate and I feel it’s really important that students understand how our progressive tax system works. Actually getting how standard deductions vs itemized deductions work, and the meaning of “moving up a tax bracket” are BIG ideas when it comes to thinking about your finances and planning for taxes.

I use two videos and a resource to help me out with this one. Two Cents are back again for a great explanation of the different tax systems and throwing the question out there of whether they are “fair” or not to all members of our population.

I follow it up with a visual walkthrough of how a salary is taxed using a federal income tax calculation. This usually leads us off on a tangent about Social Security and Medicare programs, which I ask them to do a little research into and then share their findings with the class. Very informal, but a great task for researching important questions about our finances. We’ll also discuss the challenge the government is facing with social security. I like asking students what they would propose as solutions. We usually get some very insightful debates and come to the realization that the choices available are not great, and very difficult for a political party to propose due to the negative backlash they’d bring up.

“The Social Security Board of Trustees now estimates that based on current law, in 2041,the Trust Funds will be depleted. Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is falling. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.” - Social Security Newsletter

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A Visual Walkthrough of Federal Income Tax

See the process of a salary being divided into the different marginal tax brackets and then taxed using paper money.

Income Tax Brackets Visualization Activity

Next up, we do a federal income tax calculation ourselves. I do a walkthrough with everyone together at a $50,000 salary, and then we do a second at $200,000.

This activity really increased my students' understanding of the progressive tax system as well as their engagement throughout the whole tax unit.

In this activity, students are going to calculate federal income tax using the most updated filing year. You can choose to have kids complete this activity using a pen and calculator, or you can do it with printable cash, which is the way I found my students learned best.

Onto State Income Tax

Depending on what state you live in, your income tax situation is going to be different. Here are the latest State Income Tax Rates across the U.S.

Some states have no income tax such as Florida and Alaska. Some have a flat tax rate like Pennsylvania and Arizona. The rest have a progressive tax system like Federal Income Tax and the brackets can range from 2 - 12 (sorry if you live in Hawaii!).

I’ll usually print the tax tables for where I live (Maryland) and then for some of our surrounding states to compare. We use a Calculate Federal and State Income Tax Worksheet to provide structure and guidance to the students as they navigate the state taxes calculation for the numbers we did in the previous Federal Income Tax calculations to see their total taxes owed.

Calculate Income Tax resource from FI Educator

Calculate Federal and State Income Tax

This resource is designed to help students navigate through the process of calculating taxes owed by hand. From start to end, the inputs needed from students are made clear and the calculations required are shown.

Included in the resource are instructions for the teacher, and helpful video walkthroughs of examples for students.

Practice and Build

How much you practice depends on your own personal viewpoints and the demands of your curriculum and standards. If you are a more math-heavy class, this is probably going to be a big area for you since the piecewise functions nature of progressive tax and using percentages naturally lend themselves to math courses. I have a resource called Calculating Net Pay which gives you over 20 different scenarios where students will have to determine the net pay for a person or couple. It’s a wonderful opportunity to practice and I have done all the heavy lifting for you to find the tax rates for different states and generate scenarios to use. I update it annually around November so that you will always have the most current tax rates for the filing year ahead or just past.

In my class, we spend time at the beginning of our budgeting unit creating a basic personal budget in Google Sheets. We start with a salary that we researched based on the average starting salary for a career we are interested in. We then calculate net income based on average US adult effective tax rates, and then divide our income into the main budget categories based on recommend spending percentages. Once we know how to calculate net income from our taxes unit, we update our Google Sheet Budgets with our better estimation of taxes owed and adjust our budget numbers accordingly. We continue to revisit this Sheet as we explore major budget areas such as food, transportation, and housing.

Calculate Net Pay

Students will be given a salary (gross pay), filing status, state of residence, paycheck frequency, and 401k contribution (Traditional and Roth!) which they will have to use to determine how much money they can expect to get in their paychecks.

This hands-on activity allows students to see how FICA taxes are calculated, what happens in the bracket system at the federal and state level, and how 401k contributions impact taxable income as well as paycheck amounts.

Calculate Federal and State Income Tax Google Sheet - FREE TOOL

I created a Google Sheet that will allow you (or students) to input a salary, select a state income tax, filing status, retirement contributions, and number of paychecks per year to spit out your total amounts owed in taxes, and expected paycheck amount approximation. It’s free for you to use and you can download your copy here.

Simulation Resources

Simulations offer a great place for students to practice and get feedback in a very short space of time and it can often replicate real-life a little bit better. There are some great tax simulations out there but not many great ones that are free. TurboTax used to have an awesome one with fake accounts set up for students to practice with, but it seems like they have disappeared. I have found the IRS website and EverFI’s simulations to be the next best alternative.

IRS Tax Simulations

They’re a little out of date, but the options available are interesting with some W-4 and 1044 options. I like having students do Lawrence, Cicely, and Monica.

IRS Income Tax Simulations

EverFI and Intuit Simulations.

They’re free, easy to use, and student can take themselves through it. I have mine submit a screenshot when they complete the first module as evidence it is done.

Turbotax income tax simulations on Everfi

Put it all together with some Monopoly

Monopoly is my all-time favorite money game and my number 1 recommend resource for teachers to get for their classroom if they can get the funding. I use it as the teaching medium for so many concepts in personal finance and I keep finding more ways to use it each year. For this unit, we can use Monopoly to practice and check for understanding with regards to flat and progressive taxes. I like doing it as my last activity in the Income Tax unit to end on a positive note and assess how well the students understand the different systems. The way they learn to make choices that reduce their taxes owes is a big bonus moment too!

Check out my full series of Monopoly resources here.

Income Tax Monopoly

Income Tax Monopoly

This resource has tax forms for a flat tax system like we see in 11 of the states in the US, and a graduated (progressive) tax form like we see in the federal income tax system and 32 of the US states (including D.C.). Students play the game with some added 'Classroom rules' to speed up the acquisition of property, the most important being an auction of properties that players opt not to buy. The teacher dictates how often taxes are due and can choose to use the flat tax or progressive tax system for the game. At 'tax time' the students pause the game, calculate their taxable income, and then pay the taxes owed using the provided tax forms.

Who actually has to pay taxes and what happens if I don’t?

I find my teens don’t shy away from these sorts of ethical questions. “What about if I’m paid in cash?” is another popular one I field. This is when I decided to bring in some extra help and I had Sonia Castelan join my class and classrooms across the country to field these technical and ethical questions that I didn’t feel totally equipped to answer!

Taxes for Teens with Sonia Castelan

Taxes can be one of the toughest topics for educators to tackle with students. The students often have great questions and I don't feel qualified to answer them or I end up doing lots of research to try and find an answer. Sonia Castelan from Castelan Tax Services joins us to answer all the major questions students have about income tax as well as covering the main points that they need to know for now and in the future!Some of the questions we handled included: when do I need to start paying taxes? Do I need to file a tax return if I am a dependent? What happens if I get paid in cash? What information do I need to be tracking during the year before tax time? How can I legally avoid paying taxes?

*The information in this article is for education and entertainment purposes only and is not intended as tax advice. Please ask a licenses tax professional for help with your own tax situation if you have questions.

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