Tax Flashcardz

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What are above-the-line deductions?

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Above-the-line deductions are specific expenses that can be deducted from gross income to arrive at adjusted gross income (AGI). They reduce taxable income and can include contributions to retirement accounts, student loan interest, and certain business expenses.

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What is the standard deduction?

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The standard deduction is a fixed dollar amount that reduces the income on which you are taxed. For the tax year 2021, the standard deduction for single filers is $12,550.

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What is the difference between itemized deductions and the standard deduction?

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Itemized deductions are specific expenses that taxpayers can claim to reduce taxable income, while the standard deduction is a set amount that taxpayers can deduct without itemizing. Taxpayers can choose whichever is higher.

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How do you calculate net pay?

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Net pay is calculated by subtracting all deductions (like taxes, retirement contributions, and health insurance) from gross pay. For example, if gross pay is $300 and deductions total $94, net pay is $206.

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What is a W-4 form?

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A W-4 form is an IRS form that employees fill out to indicate their tax situation to their employer. It helps employers determine the amount of federal income tax to withhold from employees' paychecks.

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What is FICA tax?

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FICA tax is a federal payroll tax that funds Social Security and Medicare. It is composed of two parts: Social Security tax and Medicare tax.

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What is the purpose of a paystub?

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A paystub is a document that outlines an employee's earnings and deductions for a specific pay period. It provides details on gross pay, net pay, and various withholdings.

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What is the difference between a wage and a salary?

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A wage is compensation based on the number of hours worked, typically paid hourly, while a salary is a fixed amount paid regularly regardless of hours worked.

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What are 401(k) withholdings?

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401(k) withholdings are contributions made by employees to their 401(k) retirement savings plan, which are deducted from their paycheck before taxes are applied.

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What is the significance of the W-2 form?

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The W-2 form is a tax document that employers send to employees and the IRS, detailing the employee's annual wages and the amount of taxes withheld from their paychecks.