Understanding Taxes Vocabulary Quiz

What is a tax deduction?

• A reduction in the amount of income that is subject to tax, to encourage certain activities or investments.

• A direct reduction in tax owed, dollar for dollar.

• A form used to file income taxes.

• A payment made to the government based on income.

What is a tax credit?

• A form used to report income and taxes withheld by an employer.

• A reduction in the amount of taxes owed, for specific expenditures.

• A document showing how much you have earned in a year.

• A payment made to the government based on income.

Which of the following is considered taxable income?

• Gifts from family members.

• Life insurance payouts.

• Wages, salaries, and tips.

• Child support payments.

What is the purpose of a W-2 form?

• To report the amount of federal, state, and other taxes withheld from your paycheck.

• To adjust the amount of tax your employer withholds from your paycheck.

• To report income from freelance or independent contractor work.

• To claim a refund for overpaid taxes.

What is a tax refund?

• The amount of money you owe to the IRS after filing your taxes.

• The amount of money the IRS owes you after overpaying your taxes.

• A tax credit for low-income individuals.

• A deduction from your taxable income.

What is the purpose of a W-4 form?

• To report income from freelance or independent contractor work.

• To adjust the amount of tax your employer withholds from your paycheck.

• To report the amount of federal, state, and other taxes withheld from your paycheck.

• To claim a refund for overpaid taxes.

What is a 1099 form used for?

• To report non-employment income.

• To adjust the amount of tax withheld from your paycheck.

• To report the amount of taxes withheld from your paycheck.

• To claim a refund for overpaid taxes.

What does "withholdings" refer to in the context of income tax?

• The amount of tax owed at the end of the year.

• The amount of your income that is not subject to taxes.

• The amount of tax taken out of your paycheck and sent to the government by your employer.

• The amount of money you get back as a tax refund.

Which form would an independent contractor most likely need to be familiar with?

• W-2

• W-4

• 1099

• 1040

What is the main difference between a tax deduction and a tax credit?

• A tax deduction reduces the amount of income subject to tax, while a tax credit reduces the amount of tax owed.

• A tax deduction is for businesses only, while a tax credit is for individuals.

• A tax deduction is a refundable amount, while a tax credit is non-refundable.

• There is no difference; they are interchangeable terms.