Understanding Personal Income Taxes

What is the primary purpose of income tax?

• To fund public services and government operations

• To encourage savings

• To increase inflation

• To reduce employment

Which of the following is considered taxable income?

• Gifts from family

• Lottery winnings

• Child support payments

• Life insurance payouts

What is the term for the total amount of income earned before any deductions or taxes are applied?

• Net income

• Gross income

• Adjusted gross income

• Taxable income

Which form is used by employees to determine the amount of federal income tax to withhold from their paychecks?

• W-2

• 1040

• W-4

• 1099

What is the tax rate applied to the last dollar of income earned called?

• Average tax rate

• Marginal tax rate

• Effective tax rate

• Flat tax rate

Which of the following is a type of tax that is directly levied on personal or corporate income?

• Sales tax

• Property tax

• Income tax

• Excise tax

What is the term for income from investments such as stocks and bonds that is subject to taxation?

• Earned income

• Passive income

• Portfolio income

• Capital income

Which of the following is NOT typically considered a deductible expense on a personal tax return?

• Mortgage interest

• Charitable contributions

• Grocery bills

• Medical expenses

What is the name of the form used to report interest income from banks and other financial institutions?

• 1099-INT

• W-2

• 1040

• 1099-DIV

Which of the following is a tax-advantaged account designed to encourage saving for future education expenses?

• 401(k)

• Roth IRA

• 529 Plan

• HSA