How to Explain Taxes to Kids

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Parents are talking to their kids.
Parents are talking to their kids. (Image: Jack Hollingsworth/Photodisc/Getty Images)

Talking to kids about the ins and outs of taxes is a way to explain civic responsibility and fiscal obligation and provide an inside look at how the government acts as a steward of taxpayer money. The Internal Revenue Service provides a variety of tools for helping kids understand taxes from different perspectives.

Why We Pay Taxes

The concept of taxes can be foreign to kids, so use age-appropriate explanations to make complex tax issues easier to understand. Talk about the history of the U.S. tax system, how it developed and how it benefits citizens. For example, grade-schoolers can recognize how taxes go toward paying for things like schools and parks; middle-schoolers can participate in discussions about how tax revenue supports infrastructure such as roadways and social services; and high-schoolers are old enough to be taught various perspectives on local, state and federal tax structures, how money is collected and used and the implications of evading taxes.

Income Tax

Show kids a sample pay stub that itemizes tax deductions, such as payroll tax and Social Security withholding. Explain how employers typically take out a certain percentage of income per pay period that’s based on what individuals ask for when they fill out employment paperwork at the time they’re hired for a job. Show examples of IRS W-2 and 1099 forms to demonstrate how taxpayers estimate what they will owe in taxes each year. Walk kids through the process of completing an income tax return to demonstrate how hypothetical numbers translate into accurate income reporting and tax payment.

Sales Tax

Demonstrate how sales tax is paid by showing kids how to estimate the total cost of an item when shopping. For example, if you live in a state with 7 percent sales tax, explain that buying something priced at $100 will actually cost $107 at the register, with $7 going to pay sales tax. Explain how local taxpayers have a say in determining state sales tax and what the money is used for. Point out things like a new fire station or community recreation center that was built using sales tax money as a way to demonstrate why sales tax is necessary and what citizens get in return.

Property Tax

Help kids understand how property taxes are assessed by showing them samples of property assessment forms. Explain how the local government periodically assesses home values by comparing similar properties, their amenities and recent sales prices. Explain how a property can appreciate with things like additions or depreciate due to poor care or inactivity in the local housing market. Show kids your own mortgage statement to explain how property tax is often added into your payment to make compliance easier.

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