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Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Which of the following is not a form of earned income?
A. wages
B. commissions
C. rental income
D. salaries
____ 2. Eligible workers who work more than _____ hours per week must receive overtime pay at least _____ times
their regular hourly rate.
A. 30, 2
B. 35, 1.5
C. 40, 1.5
D. 40, 2
____ 3. Income paid as a percentage of sales made by salesperson is a _____.
A. tip
B. wage
C. bonus
D. commission
____ 4. Income earned by workers who are self-employed is called _____.
A. profit
B. capital gains
C. entrepreneurial income
D. gratuity
____ 5. The Employee’s Withholding Allowance Certificate is a federal tax form that is also called the _____.
A. Form W-2
B. Form W-4
C. Form 1040
D. Form I-9
____ 6. A(n) _____ is a report containing information used to calculate taxes owed by the taxpayer.
A. tax return
B. Form W-2
C. audit
D. Form W-4
____ 7. What is the amount on which taxes are calculated?
A. net pay
B. gross income
C. taxable income
D. earned income
____ 8. The _____ deduction is a fixed amount that may be deducted from adjusted gross income, which is set by law
and will vary according to filing status.
A. itemized
B. taxable
C. exempted
D. standard
____ 9. The amount of total tax owed on income for the year is known as the _____.
A. tax bill
B. tax liability
C. tax credit
D. income liability
____ 10. Which tax form is the simplest form to use?
A. Form 1040
B. Form 1040A
C. Form 1040EZ
D. E-filing form
____ 11. What is it called when the federal government spends more money than it collects?
A. deficit spending
B. mandatory spending
C. discretionary spending
D. taxable spending
____ 12. What federal program pays for certain health-care expenses for older citizens and others with disabilities?
A. Social Security
B. Medicare
C. Medicaid
D. VITA Programs
____ 13. Which type of tax has the effect of imposing a higher tax rate on those with lower incomes?
A. progressive
B. regressive
C. direct
D. indirect
____ 14. Which of the following is not a benefit category provided by Social Security?
A. disability benefits
B. divorced people’s benefits
C. survivor’s benefits
D. low-income benefits
____ 15. At what age do workers become eligible for full retirement benefits from Social Security?
A. 55
B. 59 1/2
C. 65
D. 67
Matching
Match the following terms with their definitions.
A. wage
B. piecework
C. tip
D. gross pay
E. allowance
F. FICA taxes
G. compensation
H. work-life balance
I. gross income
J. tax adjustment
K. tax deduction
L. exemption
M. tax credit
N. audit
O. Social Security
P. disability
Q. transfer payment
R. indirect tax
S. progressive tax
T. proportional tax
____ 16. Wages or salaries and benefits paid to employees.
____ 17. Money paid for service beyond what is required.
____ 18. Amount of earnings not subject to income taxes.
____ 19. All the income an individual receives in a year including both earned and unearned income.
____ 20. Amount that is subtracted from adjusted gross income, which further reduces taxable income.
____ 21. Wage based on a rate per unit of work completed.
____ 22. Amount of time an individual spends at work compared to the amount of time spent in his or her personal life.
____ 23. Amount a taxpayer can claim for each person who is dependent on that person’s income.
____ 24. Review of financial records and statements to make sure the information is accurate as reported.
____ 25. Federal program that provides income when earnings are reduced or stopped because of retirement, serious
illness or injury, or death.
____ 26. Total income before payroll deductions
____ 27. Limitation that affects a person’s ability to function in major life activities.
____ 28. Government-approved reduction in gross income.
____ 29. Payment made to an individual from the federal government through various social benefit programs.
____ 30. Payment for work that is usually calculated on an hourly, daily, or piecework basis.
____ 31. Amount that is subtracted from the taxes an individual owes.
____ 32. Tax that imposes a higher tax rate on those with higher incomes.
____ 33. Taxes paid by both the employer and the employee to finance federal Social Security and Medicare programs.
____ 34. Tax levied on one person or entity, but paid by another.
____ 35. Tax that imposes the same tax rate on all individuals or entities regardless of differences in income or ability
to pay.
Completion
Complete each statement.
36. The lowest hourly wage employers can legally pay most workers by law is the
______________________________.
37. A fixed payment for work expressed as an annual figure is a(n)
_____________________________________________.
38. A(n) _____________________________________________ is money added to an employee’s base pay.
39. A subtraction from gross pay is called a _____________________________________________.
40. A child, spouse, or elderly parent who relies on someone else for financial support is a(n)
_____________________________________________.
41. A(n) _____________________________________________ is a form of noncash compensation received in
addition to a wage or salary.
42. _____________________________________________ means that the government expects individuals and
businesses to voluntarily report all income that is subject to the income tax.
43. The Wage and Tax Statement, which shows a person’s earnings and the amounts of income, is also known as
the _____________________________________________.
44. Earnings from sources other than work is called _____________________________________________.
45. Adjusted gross income is calculated by subtracting _____________________________________________
from _____________________________________________.
46. A(n) _____________________________________________ is an allowed expense that can be deducted
from adjusted gross income, such as interest paid on a home loan or charitable contributions.
47. _____________________________________________ exemptions are claimed for the taxpayer or the
taxpayer and spouse, while _____________________________________________ exemptions are those
claimed for children or other individuals supported by the taxpayer.
48. _____________________________________________ are government-issued tables that show a taxpayer’s
total tax obligation for a year based on the amount of total income.
49. If the amount of taxes already paid is _____________________________________________ than the
amount owed, the taxpayer will receive a refund. If the amount is
__________________________________________, the taxpayer must pay the difference.
50. A detailed examination of a tax return by the IRS is a(n)
_____________________________________________.
51. _____________________________________________ is the primary source of revenue for the federal
government.
52. _____________________________________________ expenditures are those enacted into law by Congress.
53. The government program that pays certain health-care costs for eligible, low-income individuals and families
is _____________________________________________.
54. _____________________________________________ expenditures are expense items that Congress can
adjust according to needs and revenues.
55. _____________________________________________ are paid directly to the government by the taxpayer,
such as income tax.
Short Answer
56. List the steps of filling out a Form 1040EZ.
57. What does it mean for the federal income tax system to be a pay-as-you-earn system?
58. How is net pay calculated?
59. Provide an example of an employee benefit.
60. When is the filing deadline for income taxes?
61. There are five possible filing statuses that can be claimed when filing an income tax return. What are they?
62. What is a capital gain?
63. List a source of tax information and assistance.
64. What are the consequences of providing inaccurate information on a tax return?
65. Why do legislators raise and lower taxes?
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Answer Section
MULTIPLE CHOICE
1. ANS: C PTS: 1
2. ANS: C PTS: 1
3. ANS: D PTS: 1
4. ANS: A PTS: 1
5. ANS: B PTS: 1
6. ANS: A PTS: 1
7. ANS: C PTS: 1
8. ANS: D PTS: 1
9. ANS: B PTS: 1
10. ANS: C PTS: 1
11. ANS: A PTS: 1
12. ANS: B PTS: 1
13. ANS: B PTS: 1
14. ANS: D PTS: 1
15. ANS: D PTS: 1
MATCHING
16. ANS: G PTS: 1
17. ANS: C PTS: 1
18. ANS: E PTS: 1
19. ANS: I PTS: 1
20. ANS: K PTS: 1
21. ANS: B PTS: 1
22. ANS: H PTS: 1
23. ANS: L PTS: 1
24. ANS: N PTS: 1
25. ANS: O PTS: 1
26. ANS: D PTS: 1
27. ANS: P PTS: 1
28. ANS: J PTS: 1
29. ANS: Q PTS: 1
30. ANS: A PTS: 1
31. ANS: M PTS: 1
32. ANS: S PTS: 1
33. ANS: F PTS: 1
34. ANS: R PTS: 1
35. ANS: T PTS: 1
COMPLETION
36. ANS: minimum wage
PTS: 1
37. ANS: salary
PTS: 1
38. ANS: bonus
PTS: 1
39. ANS: payroll deduction
PTS: 1
40. ANS: dependent
PTS: 1
41. ANS: employee benefit
PTS: 1
42. ANS:
Voluntary compliance
voluntary compliance
PTS: 1
43. ANS:
Form W-2
form W-2
Form w-2
form w-2
Form W2
form W2
Form w2
form w2
W-2
w-2
W2
w2
PTS: 1
44. ANS: unearned income
PTS: 1
45. ANS: adjustments, total income
PTS: 1
46. ANS: itemized deduction
PTS: 1
47. ANS:
Personal, dependent
personal, dependent
PTS: 1
48. ANS:
Tax tables
tax tables
PTS: 1
49. ANS:
more, less
higher, lower
more, lower
higher, less
PTS: 1
50. ANS:
tax audit
audit
PTS: 1
51. ANS:
Taxation
taxation
Tax
tax
Taxes
taxes
PTS: 1
52. ANS:
Mandatory
mandatory
PTS: 1
53. ANS:
Medicaid
medicaid
PTS: 1
54. ANS:
Discretionary
discretionary
PTS: 1
55. ANS:
Direct
direct
PTS: 1
SHORT ANSWER
56. ANS:
Step 1: Personal Information; Step 2: Income; Step 3: Payments, Credits, and Tax; Step 4: Tax Refund or
Amount Owed; Step 5: Signature.
PTS: 1
57. ANS:
This means that a working person pays taxes from each paycheck instead of in one lump sum each year.
PTS: 1
58. ANS:
Net pay is gross pay (plus bonuses) minus payroll deductions.
PTS: 1
59. ANS:
(Any) Health insurance; dental insurance; retirement plan; sick leave; vacation time; flexible work schedule;
childcare; profit-sharing program; opportunities for continuing education and professional development.
PTS: 1
60. ANS:
Tax returns must be filed no later than April 15 of the year after the income was earned. If April 15 falls on a
Saturday, Sunday, or national holiday, the filing date is extended to the next business day.
PTS: 1
61. ANS:
Single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with
dependent child.
PTS: 1
62. ANS:
A capital gain results when property, such as corporate stock, is sold for an amount greater than its cost.
PTS: 1
63. ANS:
(Any) Internal Revenue Service (IRS), Volunteer Income Tax Assistance (VITA) Program, Tax Counseling for
the Elderly (TCE) Program, tax preparation services, tax preparation guides.
PTS: 1
64. ANS:
Providing inaccurate information could extend the processing of the tax return, delay the tax refund, and may
prompt the IRS to investigate the tax return. Intentionally providing false information on a tax return form is a
crime. An individual caught providing false information faces financial penalties, fines, and even criminal
prosecution.
PTS: 1
65. ANS:
To stabilize the economy, address social challenges, and influence taxpayer behavior.
PTS: 1
