Taxes - Unit Test

What is the difference between gross pay and net pay?

• Net pay is before taxes and deductions are subtracted; Gross pay is your take-home pay
• There is no difference between gross pay and net pay
• Gross pay is before taxes and deductions are subtracted; Net pay is your take-home pay

If you do not withhold enough money to cover your tax liability, what is the most likely outcome?

• You will receive a larger refund after filing taxes
• You many owe additional taxes after filing taxes
• You will be exempt from taxes the following year
• Your employer will cover the remaining tax balance

Why should you accurately complete a W-4 form any time you start a new job or change your tax status?

• You need a copy of your W-4 to file your tax return annually
• Your W-4 determines how much Federal income tax money your employer should withhold
• Your W-4 determines your total tax bill at the end of the year
• Completing a W-4 will guarantee you receive a large tax refund

Which statement is TRUE about how much taxes Michael will legally pay, who is going to file as single and makes $90,000?

• Michael will pay $14,854 because of the marginal tax brackets he will fill up the 10% and 12% brackets and the rest will be in the 22% bracket
• Michael will pay 12% of his income, which is $10,800 since he ends up in the 12% tax bracket
• Michael will pay 22% of his income, which is $19,800 since he ends up in the 22% tax bracket
• Michael will pay no taxes since he will commit tax evasion

Which statement BEST describes marginal tax rates?

• Your income is taxed at the highest rate that applies to your income amount
• Your income is equally split among the tax brackets
• Your income is always taxed at the lowest rate of that tax year
• Your income may fall into more than one tax bracket, so more than one tax rate can apply

Which statement is TRUE when comparing long-term to short-term capital gains tax?

• Both are taxed at the same rate
• Short-term capital gains are taxed at a lower rate
• Long-term capital gains will be taxed at a higher rate
• Short-term capital gains are taxed as ordinary income, while long-term capital gains are taxed at reduced rates

What type of payment is NOT typically reported on a 1099 form?

• Interest income from your savings account
• Capital gains from your brokerage account
• Cancellation of debt
• Income from working at McDonald's

Which of the following best describes the difference between tax avoidance and tax evasion?

• Tax avoidance involves the use of illegal methods to reduce your tax obligation, while tax evasion involves the use of legal methods to do the same thing
• Tax avoidance is when you report income from multiple sources, while tax evasion only involves a single income
• Tax avoidance is the legal use of tax laws to reduce the tax someone owes, while tax evasion is the illegal act of not paying taxes due
• Tax avoidance is when you request an extension to file your tax return, while tax evasion is when you fail to file your tax return altogether

Jay filed his taxes and found out he owes money. What is the most reasonable explanation as to why he owes money in taxes?

• Not enough money was withheld from his paychecks.
• Too much money was withheld from his paychecks.
• When filing his taxes, Jay accidentally checked “Married filing jointly” instead of “Single”.
• The IRS is asking Jay for a future advance on his possible taxes for next year.

Which of the following people might want to claim EXEMPT on their W-4 form?

• John, who is 20 and expects to earn $13,300 from his internship.
• Stacey, who is 16 and expects to earn $7,500 from her part-time job.
• David, who is 23 and expects to earn $15,000 from his part-time job.
• Hannah, who is 25 and expects to earn $55,000 from her full-time job.