Understanding Earned Income and Wages

What is the definition of earned income?

• Income received from investments.

• Income received from employment, including self-employment.

• Income received from rental properties.

• Income received from inheritance.

Which of the following best describes a wage?

• A fixed annual payment for work.

• Payment for work that is usually calculated on an hourly, daily, or piecework basis.

• Income paid as a percentage of sales made by a salesperson.

• Money added to an employee’s base pay.

What is a piecework wage?

• A wage based on a rate per unit of work completed.

• A fixed payment for work expressed as an annual figure.

• Income paid as a percentage of sales made by a salesperson.

• Money paid for service beyond what is required.

What is a commission?

• A fixed payment for work expressed as an annual figure.

• Income paid as a percentage of sales made by a salesperson.

• Money added to an employee’s base pay.

• Subtraction from gross pay.

Which of the following is considered a tip?

• A fixed payment for work expressed as an annual figure.

• Money paid for service beyond what is required; also known as gratuity.

• Income paid as a percentage of sales made by a salesperson.

• Money added to an employee’s base pay.

What is a payroll deduction?

• Subtraction from gross pay.

• Total income before payroll deductions.

• Gross pay minus payroll deductions.

• Employee’s Withholding Certificate.

What is the purpose of Form W-4?

• To calculate the total income before payroll deductions.

• To determine how much income tax to withhold from an employee’s paychecks.

• To calculate the net pay of an employee.

• To determine the amount of FICA taxes to be paid.

Which of the following are FICA taxes used for?

• To fund employee bonuses.

• To pay for employee tips.

• To fund Social Security and Medicare.

• To calculate gross pay.

What is the difference between gross pay and net pay?

• Gross pay is after deductions; net pay is before deductions.

• Gross pay includes bonuses; net pay does not.

• Gross pay is before deductions; net pay is after deductions.

• Gross pay is the same as net pay.

What is the difference between salary and wage?

• A salary is based on the hours you work, and a wage is not.

• A wage is an amount that is paid for each hour, and a salary is a set income paid regularly.

• A wage is income for very experienced workers.

• They are the same types of income.