Income Tax Basics

Income tax is the tax you pay on money you receive from all of the following sources EXCEPT

• your job

• rent from tenants

• gifts you receive from your friends and relatives

• earnings on investments like stocks

What are taxes?

• the amount of money citizens and businesses charge the government so they can pay all their bills.

• the amount of money citizens and businesses are required to pay so the government can function and provide services.

• the amount of money citizens and businesses are required to pay so they are protected from criminal organizations.

• the amount of money citizens and businesses pay the government because it makes them happy.

Money that the government collects from people and businesses is called a _____________.

• Income

• Tax

• charge

• estate

Which is true?

• The less you make, the more you get taxed.

• The more you make, the higher percentage tax is taken out.

• The more you make the lower you get taxed.

• If you are cool, you don't get taxed at all.

Under a progressive income tax, who would pay the largest proportion of her income in taxes?

• A schoolteacher

• The owner of a small business

• A millionaire

• A student on financial aid

What was the purpose of the 16th Amendment in 1913?

• To introduce sales tax

• To allow Federal government to tax income in every state

• To repeal the income tax

• To decrease the tax rates

Answer explanation

The purpose of the 16th Amendment in 1913 was to allow the Federal government to tax income in every state.

What is the primary purpose of income tax?

• To fund government services and infrastructure

• To penalize high earners

• To encourage savings

• To support only the military

Which of the following is a characteristic of a progressive tax system?

• Everyone pays the same percentage of their income

• Higher earners pay a higher percentage of their income

• Lower earners pay a higher percentage of their income

• Only businesses are taxed

What is a tax deduction?

• A penalty for late tax payment

• An amount that can be subtracted from taxable income

• A tax on luxury goods

• A fee for filing taxes

Which form is typically used by individuals to file their federal income tax returns in the United States?

• Form W-2

• Form 1040

• Form 1099

• Form 4868