WorksheetsStrand 3- Financial Lit. Assessment
Total questions: 33
Worksheet time: 17mins
Which of the following income sources is generally characterized by unpredictable monthly earnings and the requirement for the taxpayer to pay both the employer and employee portions of FICA taxes?
Wages from a part-time job as a retail associate.
Interest earned on municipal bonds.
Profit earned from a sole proprietorship (self-employment).
A fixed monthly pension payment.
The primary reward of entrepreneurship and self-employment, compared to traditional employment, is often the potential for:
Higher job security and guaranteed income protection.
Guaranteed matching contributions to retirement funds.
Unlimited financial upside and personal autonomy in decision-making.
Exemption from paying federal and state income taxes.
The primary risk of self-employment is the personal liability and volatility of income. This is best mitigated by which of the following actions?
Maximizing all personal voluntary deductions immediately.
Operating as a Sole Proprietorship for maximum simplicity.
Establishing a robust emergency fund and using a Limited Liability Company (LLC) business structure.
Paying only the employee portion of the Self-Employment tax (FICA).
If inflation causes the cost-of-living to increase by 7, but wages only increase by 2, the individual's real income has effectively decreased, meaning their:
Gross income has decreased by 5.
Taxable income has increased by 7.
Purchasing power has been reduced, as their money buys 5 fewer goods and services.
A high cost-of-living in a major metropolitan area primarily impacts a salaried individual's ability to:
Accurately calculate their FICA contribution.
Meet the requirements for the Head of Household filing status.
Increase their gross income to a higher level.
Save money and maintain the same standard of living as in a lower-cost area.
If a city's rent prices rapidly decline, what is the most immediate positive impact on a resident's purchasing power?
It increases their taxable income by the amount of the rent savings.
It decreases their voluntary deductions for retirement funds.
It leaves more of their net income available for discretionary spending and saving.
It reduces their mandatory FICA tax rate.
What is the key functional difference between a mandatory deduction and a voluntary deduction on a paycheck?
Mandatory deductions are always pre-tax, while voluntary deductions are always post-tax.
Mandatory deductions are legally required by government entities; voluntary deductions are elected by the employee.
Voluntary deductions reduce gross income; mandatory deductions only reduce net income.
Mandatory deductions are used for retirement funds, while voluntary deductions are for social programs.
A worker has a gross income of 1,500perpayperiod.Mandatorydeductionstotal 350, and a health insurance premium (a voluntary deduction) is $150. What is the employee's net income?
$1,500
$1,150
$1,000
$1,350
Which of the following is an example of a voluntary deduction that an employee can choose to have withheld from their paycheck?
Federal Unemployment Tax (FUTA) withholding.
Social Security tax.
Pre-tax contribution to an employer-sponsored 401(k) plan.
State income tax.
Which of the following is a potential voluntary deduction that is subtracted from Gross Income?
Pre-tax contribution to an employer-sponsored 401(k) plan
Health insurance premiums
Charitable contributions
Union dues
A worker has 1600 withheld from their paycheck for Federal Income Tax and 1200 for State Income Tax. What type of deduction are these?
Voluntary, because the amount can be changed on a W-4 form.
Mandatory, because they are required withholdings levied by government agencies.
Voluntary, because they can be claimed back as a refund.
Pre-tax, which is a deduction that is the equivalent of FICA.
Which of the following describes the relationship between Gross Income and Net Income?
Net income is a fixed percentage of gross income for all taxpayers.
Gross income is the starting point, and net income is the remainder after all mandatory and voluntary deductions.
Net income is used to calculate FICA, and gross income is used to calculate taxable income.
Net income is only the income from employment, while gross income includes investment income.
The Federal Insurance Contributions Act (FICA) tax is applied to most wage earners. What is the fundamental purpose of this mandatory tax?
To fund the federal government's general operating budget, including defense spending.
To provide universal healthcare and retirement benefits through Social Security and Medicare.
To fund state-level unemployment insurance programs and infrastructure projects.
To pay for public education and local police/fire services.
How does the self-employed individual pay the equivalent of the FICA tax?
They are completely exempt from paying Social Security and Medicare taxes.
They only pay the employee's portion of the tax on their business profit.
They pay the Self-Employment Tax, which is 15.3 of their net earnings from self-employment.
They pay it as part of their property tax assessment.
The Medicare portion of the FICA tax funds which government program?
Retirement benefits for those over age 62.
Healthcare services for individuals aged 65 or older and younger people with certain disabilities.
Unemployment insurance for laid-off workers.
Food assistance for low-income families.
A state income tax is a tax levied by a state government, typically to fund which type of services?
Social Security and Medicare.
National defense and foreign aid.
State highways, public universities, and Medicaid programs.
Local libraries and county fire departments.
Which of the following describes a tax levied at the local (city or county) level to fund municipal services?
A. A flat Federal Income Tax.
B. The FICA tax on all wages.
C. A property tax on a residential home.
D. A national sales tax.
An employee's gross income is their total pay before any deductions. Their net income is their total pay after all deductions. How is taxable income different from both?
Taxable income is the same as gross income but only for self-employed individuals.
Taxable income is the final amount of income used to calculate the actual tax owed, after subtracting adjustments, standard deduction, or itemized deductions.
Taxable income is the amount remaining after subtracting only FICA from gross income.
Taxable income is always less than net income.
A taxpayer's AGI is 170,000.Theyhaveitemizeddeductionstotaling 15,000. If the Standard Deduction for their filing status is $13,850, what is their final taxable income?
$155,000 (AGI $170,000 minus itemized deductions $15,000)
$156,150 (AGI $170,000 minus standard deduction $13,850)
$158,000 (AGI $170,000 minus itemized deductions $12,000)
$170,000 (No deductions applied)
Which deduction is subtracted from Adjusted Gross Income (AGI) to arrive at the final Taxable Income figure on Form 1040?
Net income
The greater of the Standard Deduction or total Itemized Deductions.
All voluntary deductions.
Total FICA taxes paid.
Form 1040, the U.S. Individual Income Tax Return, is the central document used to:
Verify employment eligibility and record wages and withholding.
Report all income, calculate the taxpayer's final tax liability, and determine any refund or balance due.
Report miscellaneous income of $600 or more to the IRS.
Calculate state property taxes and file for local government services.
The purpose of Form TC-40, the Utah Individual Income Tax Return, is to:
Calculate the federal income tax owed to the IRS, specifically for Utah residents.
Report Utah state income, apply state-specific deductions, and calculate state income tax liability to the Utah Tax Commission.
Apply for a business license in Utah.
Report sales tax collected by Utah businesses.
In which of the following situations would a taxpayer NOT be required to file a state income tax return?
The taxpayer only earns income from Social Security benefits.
The taxpayer lives and works in a state that does not have a state income tax.
The taxpayer lives in Utah (which has an income tax) and has enough gross income to meet the federal filing threshold.
The taxpayer is only reporting local property taxes paid.
What is the primary function of selecting a correct Filing Status (e.g., Single, Head of Household) on Form 1040?
To determine the required amount of FICA withholding on an individual's paycheck.
To establish the amount of state income tax owed to the taxpayer's local municipality.
To determine the applicable tax brackets, standard deduction amount, and eligibility for certain credits and deductions.
To prove to the IRS that the taxpayer is a qualifying relative for another person's return.
Which filing status is appropriate for an unmarried individual who pays more than half the cost of keeping up a home for the entire year for their qualifying parent?
Single
Married Filing Jointly
Head of Household
Qualifying Widow(er)
Which filing status provides the most significant tax benefit (lowest tax rates/highest standard deduction) for a married couple?
Head of Household
Married Filing Separately
Married Filing Jointly
Single
The difference between Married Filing Jointly (MFJ) and Married Filing Separately (MFS) is primarily that MFS:
Allows a higher standard deduction than MFJ.
Requires the couple to use the tax brackets that are typically less favorable than those for MFJ.
The Married Filing Separately (MFS) status is often chosen primarily because:
It guarantees a larger refund than Married Filing Jointly (MFJ).
It allows a spouse to avoid joint liability for the other spouse's errors or fraud on the tax return.
Can only be used if one spouse has no income.
Is the only status that provides relief from the Self-Employment Tax.
To claim a child as a Qualifying Child dependent, the child must satisfy which four primary tests (excluding the Joint Return test)?
Gross Income, Support, Taxpayer Test, and Citizenship.
Support, Relationship, Gross Income, and Residency.
Age, Relationship, Residency, and Support (Self-Support Test).
Age, Taxable Income, Marital Status, and FICA Exemption.
A key condition of the Residency Test for a Qualifying Child is that the child must have lived with the taxpayer for which period of time during the tax year?
At least 12 months, without exception.
The entire calendar year, from January 1 to December 31.
More than half of the tax year, with exceptions for temporary absences.
Any three consecutive months of the tax year.
The Support Test for a Qualifying Relative requires the taxpayer to have provided what percentage of the person's total support during the year?
Exactly 50 of the person's support.
Less than 50 of the person's support.
More than 50 of the person's support.
At least 75 of the person's support.
Regarding dependency law, what is a key difference between the test for a 'qualifying child' and the test for a 'qualifying relative'?
Only a qualifying relative must meet a residency test.
A qualifying child must meet an age test, while a qualifying relative must meet a gross income test.
Only a qualifying relative can be the child of the taxpayer.
The qualifying child test requires the taxpayer to provide more than half of the person's support.
A taxpayer, who is not married, pays 70% of the cost of keeping up a home for themself and their sister. The sister is not a qualifying child but meets all the requirements to be a Qualifying Relative. What is the correct filing status?
Head of Household
Single
Married Filing Jointly
Qualifying Widow(er)
