Paychecks, deductions, taxes and earnings

What is the definition of 'Deductions'?

• A reduction in the gross amount of income

• An increase in the gross amount of income

• A type of investment

• A form of tax evasion

Answer explanation

Deductions refer to amounts that reduce the total income subject to tax, thereby lowering the taxable income. This makes 'A reduction in the gross amount of income' the correct definition.

What are 'Federal Required deductions'?

• Mandatory taxes and withholdings from an employee's paycheck

• Optional benefits chosen by the employee

• Company bonuses and incentives

• Reimbursements for work-related expenses

Answer explanation

'Federal Required deductions' refer to mandatory taxes and withholdings from an employee's paycheck, such as federal income tax, Social Security, and Medicare taxes, which are legally required to be deducted.

A 'W-4 Tax form' is used for:

• Calculating annual tax returns

• Determining tax withholding from paychecks

• Filing state taxes

• Reporting investment income

Answer explanation

A W-4 Tax form is primarily used to determine how much tax should be withheld from an employee's paycheck, making the second option the correct choice.

What are 'Voluntary deductions'?

• Mandatory contributions to retirement funds

• Optional amounts withheld from an employee's paycheck

• Taxes required by law

• Employer's share of health insurance premiums

Answer explanation

Voluntary deductions refer to optional amounts withheld from an employee's paycheck, such as contributions to retirement plans or insurance premiums, unlike mandatory taxes or employer contributions.

What are 'Other deductions'?

• A type of tax

• A type of expense

• A type of income

• A type of savings

Answer explanation

'Other deductions' refer to expenses that can be subtracted from income to reduce taxable income. Therefore, they are classified as a type of expense, making 'A type of expense' the correct choice.

'Gross pay' is:

• The total amount of money earned before any deductions.

• The amount of money left after all deductions.

• The amount of money earned from investments.

• The amount of money received as a bonus.

Answer explanation

'Gross pay' refers to the total earnings before any deductions, such as taxes or benefits. This distinguishes it from net pay, which is the amount received after deductions.

What is 'Net pay'?

• The total amount of money earned before any deductions.

• The amount of money left after all deductions are made.

• The amount of money deducted for taxes.

• The amount of money saved in a bank account.

Answer explanation

'Net pay' refers to the amount of money left after all deductions, such as taxes and benefits, are made from the gross pay. This is the actual take-home pay an employee receives.

A 'Paystub' is:

• a document that outlines an employee's earnings and deductions.

• a type of bank account.

• a form of investment.

• a government-issued identification card.

Answer explanation

A 'Paystub' is specifically a document that details an employee's earnings and deductions, making it the correct choice. The other options do not accurately describe what a paystub is.

What additional information is sometimes listed on a pay stub?

• Employee's home address

• Company's annual revenue

• Employee's favorite color

• Company's CEO name

Answer explanation

A pay stub often includes the employee's home address for identification and tax purposes. The other options, such as the company's annual revenue or CEO name, are not typically included on pay stubs.

Nearly all US workers pay which of the following taxes?

• Income tax and sales tax

• Property tax and estate tax

• Social Security and Medicare taxes

• Capital gains tax and inheritance tax

Answer explanation

Nearly all US workers pay Social Security and Medicare taxes, which are mandatory payroll taxes that fund these social insurance programs. Other taxes listed do not apply to all workers.