Understanding Your Paystub Quiz

The difference between gross pay and net pay on a paystub is that gross pay is _____, while net pay is the amount after taxes and deductions.

• Gross pay is the amount after taxes and deductions, while net pay is the total earnings before any deductions.

• Gross pay is the total earnings before any deductions, while net pay is the amount after taxes and deductions.

• Gross pay includes only salary, while net pay includes salary and bonuses.

• Gross pay is the amount after voluntary deductions, while net pay is before any deductions.

Answer explanation

Gross pay refers to total earnings before any deductions, while net pay is what remains after taxes and other deductions are taken out. This distinction is crucial for understanding take-home pay.

_____ is typically considered a mandatory deduction from your paycheck.

• Health insurance premiums

• Union dues

• Federal income tax

• Retirement contributions

Answer explanation

Federal income tax is a mandatory deduction required by law, while health insurance premiums, union dues, and retirement contributions are typically optional or dependent on individual choices.

Tax brackets affect the amount of federal income tax withheld from your paycheck by applying _____ to different portions of your income.

• They determine the percentage of your entire income that is taxed.

• They apply a flat tax rate to all income levels.

• They apply different tax rates to different portions of your income.

• They only affect self-employed individuals.

Answer explanation

Tax brackets apply different tax rates to different portions of your income, meaning that as you earn more, only the income within each bracket is taxed at that bracket's rate, affecting the total federal income tax withheld.

_____ is an example of a benefit that might be listed on a paystub.

• Overtime pay

• Social Security tax

• Health insurance

• State income tax

Answer explanation

Health insurance is a benefit that employers often provide and is typically listed on a paystub. In contrast, overtime pay, Social Security tax, and state income tax are not benefits but rather payments or deductions.

"Year-to-Date Earnings" on a paystub represent _____

• The total amount earned in the current pay period.

• The total amount earned since the beginning of the year.

• The total amount earned in the previous year.

• The total amount earned in the last month.

Answer explanation

"Year-to-Date Earnings" refers to the total amount earned since the beginning of the year, not just the current pay period or previous year. This figure accumulates all earnings from January 1st to the current date.

The term on a paystub that refers to the amount of money withheld for Social Security is _____

• FICA

• Medicare

• 401(k)

• State tax

Answer explanation

FICA stands for the Federal Insurance Contributions Act, which includes Social Security and Medicare taxes. Therefore, the term on a paystub that refers to the amount withheld for Social Security is FICA.

• $2,200

• $3,800

• $2,800

• $3,000

Answer explanation

To find the net pay, subtract total deductions from gross pay: $3,000 - $800 = $2,200. Therefore, the correct answer is $2,200.

_____ is a voluntary deduction that might appear on a paystub.

• Federal income tax

• State income tax

• Health savings account (HSA) contributions

• Social Security tax

Answer explanation

Health savings account (HSA) contributions are voluntary deductions that employees can choose to make, unlike federal and state income taxes and Social Security tax, which are mandatory.

Understanding your paystub can help you manage your personal finances better by providing insight into your earnings, deductions, and net pay, aiding in _____.

• It allows you to see how much you owe in taxes each year.

• It helps you track your spending habits.

• It provides insight into your earnings, deductions, and net pay, aiding in budgeting.

• It shows your credit score.

Answer explanation

Understanding your paystub provides clarity on your earnings, deductions, and net pay, which is essential for effective budgeting and managing personal finances.

The purpose of withholding allowances on a W-4 form is to _____.

• To increase the amount of federal tax withheld from your paycheck.

• To decrease the amount of federal tax withheld from your paycheck.

• To determine eligibility for state tax credits.

• To calculate Social Security benefits.

Answer explanation

Withholding allowances on a W-4 form are used to decrease the amount of federal tax withheld from your paycheck. The more allowances you claim, the less tax is taken out, which can increase your take-home pay.