Financial Math: Federal Income Tax

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What is taxable income?

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

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How do you calculate effective tax rate?

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Effective tax rate is calculated by dividing the total tax paid by the total taxable income, expressed as a percentage.

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What is the purpose of federal income tax?

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Federal income tax is a tax levied by the government on the income of individuals and businesses to fund public services and government operations.

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What is gross income?

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Gross income is the total income earned by an individual before any deductions or taxes are applied.

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What are tax deductions?

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Tax deductions are expenses that can be subtracted from gross income to reduce the amount of taxable income.

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What is a tax bracket?

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

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What is a W-2 form?

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A W-2 form is a tax form that employers must send to employees and the IRS, reporting annual wages and the amount of taxes withheld from paychecks.

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What is the difference between gross income and net income?

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Gross income is the total income earned, while net income is the amount remaining after all deductions and taxes have been subtracted.

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What is a tax refund?

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

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What is withholding tax?

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