Finance Chapter 2: Net Income Flashcards
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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 ______

    <p>Tax Rate</p> Signup and view all the answers

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

    <p>False</p> Signup and view all the answers

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

    <p>Number of Pay Periods per Year</p> Signup and view all the answers

    What is Social Security in terms of payroll deduction?

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

    What percentage is Medicare paid on all earned money?

    <p>1.45%</p> Signup and view all the answers

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

    <p>Tax Rate</p> Signup and view all the answers

    What is Group Insurance?

    <p>Lower cost than individual insurance</p> Signup and view all the answers

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

    <p>Number of pay periods per year</p> Signup and view all the answers

    What is Net Pay?

    <p>Amount you have leftover after all tax withholdings and personal exemptions</p> Signup and view all the answers

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

    <p>Total deductions</p> 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.

    Social Security

    • 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.

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    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.

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