Finance Chapter 2: Net Income Flashcards

Questions and Answers

What does Federal Income Tax (FIT) refer to?

A voluntary tax paid by individuals

A tax only applicable to small businesses

A tax that applies only to income over a certain threshold

Money withheld by an employer from an employee's paycheck to pay federal government taxes (correct)

What are Personal Exemptions/Withholding Allowances based on?

Number of people an employee supports

The formula for Taxable Wages is: Taxable Wages = Annual Gross Pay - ______

Personal Exemptions

The Annual Tax Withheld formula is: Annual Tax Withheld = Taxable Wages x ______

Tax Rate Signup and view all the answers

Graduated Income Tax has a flat tax rate for all income levels.

False Signup and view all the answers

The Tax Withheld per Pay Period formula is: Tax Withheld per Pay Period = Annual Tax Withheld / ______

Number of Pay Periods per Year Signup and view all the answers

What is Social Security in terms of payroll deduction?

Deduction on the first 84,900 income (6.2%) Signup and view all the answers

What percentage is Medicare paid on all earned money?

1.45% Signup and view all the answers

The Tax Withheld equation is: Tax Withheld = Gross Pay x ______

Tax Rate Signup and view all the answers

What is Group Insurance?

Lower cost than individual insurance Signup and view all the answers

The Deduction per Pay Period formula is: Deduction per Pay Period = Total amount paid by employee / ______

Number of pay periods per year Signup and view all the answers

What is Net Pay?

Amount you have leftover after all tax withholdings and personal exemptions Signup and view all the answers

The formula for Net Pay is: Net Pay = Gross Pay - ______

Total deductions Signup and view all the answers

Study Notes

Federal Income Tax (FIT)

Money withheld by employers from employee paychecks to cover federal taxes.

Personal Exemptions/Withholding Allowances

Represents the number of dependents supported by an employee, impacting tax calculations.

Taxable Wages Formula

Taxable Wages are calculated as Annual Gross Pay minus Personal Exemptions.

Annual Tax Withheld Formula

Annual Tax Withheld is derived from multiplying Taxable Wages by the applicable Tax Rate.

Graduated Income Tax

A tax system where rates increase with varying income levels, ensuring higher incomes are taxed at higher rates.

Tax Withheld Formula

The amount of tax withheld each pay period is determined by dividing the Annual Tax Withheld by the number of pay periods per year.

A deduction applied to the first $84,900 of income, set at a rate of 6.2%.

Medicare

A tax levied on all income earned, at a rate of 1.45%.

Tax Withheld Equation

The amount of tax withheld can also be calculated by multiplying Gross Pay by the Tax Rate.

Group Insurance

Offers lower premiums compared to purchasing individual insurance plans.

Deduction Formula

Deductions per pay period are calculated by dividing the total employee contributions by the number of pay periods per year.

Net Pay

The remaining amount after all tax withholdings and personal exemptions are subtracted from Gross Pay.

Net Pay Formula

Net Pay is determined by subtracting Total Deductions from Gross Pay.

Description

Test your knowledge on federal income tax concepts with these flashcards from Finance Chapter 2. Explore key definitions, formulas, and allowances related to net income and taxable wages. Perfect for students looking to reinforce their understanding of tax processes.