Taxes Overview and Income Definitions
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Questions and Answers

What does FICA consist of?

  • Income Tax and Sales Tax
  • Property Tax and Excise Tax
  • Social Security and Medicare (correct)
  • State Tax and Capital Gains Tax
  • Match the criteria to qualify someone as a dependent:

    Is under 19 = Qualifies as a dependent Under 24 living at college = Qualifies as a dependent Permanently disabled = Qualifies as a dependent

    What is Net Pay?

    Amount of income left after taxes and deductions have been taken out.

    What is Gross Pay?

    <p>The total amount of an employee's earnings before deductions are taken out.</p> Signup and view all the answers

    What is a 401k?

    <p>A defined contribution plan that automatically takes out money from an employee's paycheck before income taxes and invests it in mutual funds for purposes of retirement savings.</p> Signup and view all the answers

    What is Withholding?

    <p>Taking tax payments out of an employee's pay before he or she receives it.</p> Signup and view all the answers

    What is a Refund?

    <p>Money that is given back; money that is yours again.</p> Signup and view all the answers

    What is a 1040?

    <p>A tax form filled out by an individual and filed with the IRS that determines the amount of income tax owed in a single year.</p> Signup and view all the answers

    What is a W-2?

    <p>A statement of an individual's annual wages and taxes provided by an employer that must be included with the employee's federal, state, and city income tax returns.</p> Signup and view all the answers

    What is a W-4?

    <p>A federal tax form filled out by an employee to indicate the amount that should be withheld from his/her paycheck for taxes.</p> Signup and view all the answers

    What is a 1099?

    <p>Used to report income through sources other than employment.</p> Signup and view all the answers

    What is an I-9?

    <p>Filled out when you are first hired used to verify that an employee is eligible to work in the US.</p> Signup and view all the answers

    When does someone start paying taxes?

    <p>When they get a job that pays more than a certain amount.</p> Signup and view all the answers

    What is needed when completing a 1040?

    <p>A W-2 form for every job you held in the last year.</p> Signup and view all the answers

    You need a ________ W-2 form from EACH of your employers in order to file your taxes.

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

    Why is it a disadvantage to receive a large refund?

    <p>They take so much money out at a time.</p> Signup and view all the answers

    When do you file your taxes?

    <p>April 15</p> Signup and view all the answers

    Joe has a part-time job that pays $15/hour and works 50 hours every month. His withholdings are Social Security (6.2%), Medicare (1.45%), and federal income tax (10%). What is his net pay?

    <p>$230.25</p> Signup and view all the answers

    What happens to people who have more than one allowance?

    <p>They will have less money deducted from each paycheck.</p> Signup and view all the answers

    What is the main benefit of tax filing software?

    <p>It's cheaper than hiring someone.</p> Signup and view all the answers

    What is the main benefit of a teen having a Roth IRA?

    <p>It gets them a head start on saving money for the future.</p> Signup and view all the answers

    Study Notes

    Taxes Overview

    • FICA: Federal Insurance Contributions Act comprises Social Security and Medicare.
    • Dependents qualifying criteria: under 19, under 24 and attending college, or permanently disabled.

    Income Definitions

    • Net Pay: Amount remaining after taxes and deductions are taken out.
    • Gross Pay: Total earnings before any deductions.

    Retirement Plans

    • 401k: Defined contribution plan deducting funds from paychecks pre-tax for retirement investing in mutual funds.

    Tax Withholding and Refunds

    • Withholding: Tax amounts deducted from an employee's pay before receiving the paycheck.
    • Refund: Money returned to individuals that they overpaid in taxes.

    Tax Forms

    • 1040: Tax form for individuals to report income and calculate tax owed.
    • W-2: Summarizes annual wages and taxes withheld, necessary for income tax returns.
    • W-4: Form indicating tax withholding preferences by the employee.
    • 1099: Used for reporting income not related to employment.
    • I-9: Verification form for employee eligibility to work in the U.S.

    Tax Filing and Responsibilities

    • Taxes must be paid if job earnings exceed a specified amount.
    • Multiple W-2 forms required if held jobs with different employers.
    • Disadvantage of a large tax refund: over-withholding reduces monthly cash flow.

    Filing Tax Returns

    • Careful completion of Form 1040 is crucial to determine potential tax dues or refunds.
    • Taxes must be filed by April 15 each year.

    Tax Calculation Example

    • Joe's earnings: $15/hour for 50 hours monthly; net pay calculated post-withholdings results in $230.25.

    Allowances and Deductions

    • More allowances result in reduced tax deductions per paycheck.

    Financial Tools

    • Primary advantage of tax filing software: cost-effective compared to hiring professional help.
    • Benefit of a teen Roth IRA: early savings advantage for future financial security.

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    Description

    This quiz covers essential topics related to taxes, including the Federal Insurance Contributions Act, tax withholding, and key tax forms like the 1040 and W-2. You'll also learn about income definitions such as net pay and gross pay, as well as retirement plans like the 401k.

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