Financial Math: Federal Income Tax

What is withholding tax?

• It is a tax on the total income of a company.

• It is the amount of an employee's earnings that is withheld by the employer for tax purposes.

• It is a tax that is paid only by self-employed individuals.

• It is a tax that applies only to foreign investments.

What is the standard deduction?

• A fixed dollar amount that reduces the income on which you are taxed, available to most taxpayers.

• A tax credit that increases your refund amount.

• A percentage of your income that is exempt from taxation.

• A fee paid to the government for tax processing.

How do you calculate effective tax rate?

• By dividing total tax paid by total taxable income, expressed as a percentage.

• By multiplying total income by the tax rate.

• By adding all deductions to the total income.

• By calculating the average tax rate over multiple years.

What is taxable income?

• The total income earned by an individual before any deductions.

• The amount of income that is subject to taxation, calculated as gross income minus any deductions or exemptions.

• The income that is not subject to any taxes or deductions.

• The income earned from investments only.

How does a bonus affect taxable income?

• A bonus is considered additional income and is added to the gross income, potentially increasing the overall tax liability.

• A bonus is not considered taxable income and does not affect the overall tax liability.

• A bonus is deducted from gross income, reducing the overall tax liability.

• A bonus is treated as a loan and does not impact taxable income.

What is a tax bracket?

• A range of income that is taxed at a specific rate, with higher income levels being taxed at higher rates.

• A fixed amount of tax that everyone pays regardless of income.

• A type of tax that is only applicable to businesses.

• A tax exemption for low-income individuals.

What is a tax refund?

• A payment made by the government to taxpayers for their services.

• A reimbursement to a taxpayer of any excess amount paid to the federal government or a state government.

• A fee charged by the government for processing tax returns.

• A bonus given to taxpayers for filing their taxes on time.

What is the significance of filing taxes?

• It is a way to donate to charity.

• It helps in compliance with tax laws, determining tax liability, and potentially receiving refunds or credits.

• It is only necessary for high-income earners.

• It allows individuals to avoid government scrutiny.

What is the purpose of federal income tax?

• To fund public services and government operations

• To provide tax breaks for corporations

• To encourage personal savings

• To regulate the stock market

What is the role of the IRS?

• To collect taxes and enforce tax laws

• To provide financial aid to citizens

• To regulate the stock market

• To oversee the federal budget