Taxes Overview and Income Definitions

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?

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

What is a 401k?

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. Signup and view all the answers

What is Withholding?

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

What is a Refund?

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

What is a 1040?

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. Signup and view all the answers

What is a W-2?

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. Signup and view all the answers

What is a W-4?

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

What is a 1099?

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

What is an I-9?

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

When does someone start paying taxes?

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

What is needed when completing a 1040?

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

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

separate Signup and view all the answers

Why is it a disadvantage to receive a large refund?

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

When do you file your taxes?

April 15 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?

$230.25 Signup and view all the answers

What happens to people who have more than one allowance?

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

What is the main benefit of tax filing software?

It's cheaper than hiring someone. Signup and view all the answers

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

It gets them a head start on saving money for the future. 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.