Question 1

The U.S. income tax is considered

Accepted Answer

The U.S. income tax is considered progressive because the tax rate increases as the taxable amount increases, meaning higher-income individuals pay a higher percentage of their income in taxes compared to lower-income individuals.

Question 2

A progressive tax is one in which

Accepted Answer

A progressive tax is structured so that the tax rate increases as the taxable amount increases, meaning individuals with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes.

Question 3

A tax that places a disproportionate burden on taxpayers with lower incomes is

Accepted Answer

A regressive tax takes a larger percentage of income from low-income earners than from high-income earners, placing a disproportionate burden on those with lower incomes.

Question 4

The sales tax

Accepted Answer

Sales tax is considered regressive because it takes a larger percentage of income from low-income earners than from high-income earners, thus placing a disproportionate burden on those with lower incomes.

Question 5

FICA is a ________tax, which is _________.

Accepted Answer

FICA is a payroll tax that is considered regressive because it takes a larger percentage of income from lower-income earners than from higher-income earners, as it is capped at a certain income level.

Question 6

What is the FICA tax used to pay for?

Accepted Answer

FICA tax is used to fund Social Security and Medicare programs.

Question 7

Marginal tax rates today are relatively ______ by historical standards.

Accepted Answer

Marginal tax rates today are relatively low by historical standards, as tax rates have generally decreased over the past several decades.

Question 8

In 2020, the lowest marginal tax rate is ___ percent.

Accepted Answer

In 2020, the lowest marginal tax rate in the United States was 10%.

Question 9

Which of the following is the formula for calculating the average tax rate?

Accepted Answer

The average tax rate is calculated by dividing the total taxes paid by the taxable income.

Question 10

If your taxable income is $86,000, your gross income is $115,000, and you paid $18,000 in taxes, what is your average tax rate? (Round to the nearest percent.)

Accepted Answer

The answer of If your taxable income is $86,000, your...

Question 11

Janette had a gross income of $82,750 this year. She paid $18,945 in taxes and was not eligible for any tax credits. If her average tax rate was 24.8%, how much did Janette claim in total deductions? (Round your answer to the nearest dollar.)

Accepted Answer

To find the total deductions, calculate the taxable income using the average tax rate: $18,945 / 0.248 = $76,411. Subtract this from the gross income: $82,750 - $76,411 = $6,339. Rounding to the nearest dollar gives $6,359.

Question 12

Judy is self-employed and is in the 24% federal marginal tax bracket. If she works an extra 20 hours during the year, billing $175 an hour, how much will her after-tax income increase if her Social Security tax is 6.2% and her Medicare tax is 1.45%? Assume that the state income tax rate is 3.5%. (Round to the nearest whole dollar.)

Accepted Answer

The answer of Judy is self-employed and is in the...

Question 13

Betsy is assessed payroll taxes on $136,500 of income. If her earnings increase to $139,000, how much more will she pay in payroll tax due to the additional income, assuming the Social Security cap is set at $137,700?

Accepted Answer

The answer of Betsy is assessed payroll taxes on $136,500...

Question 14

Joe and Sally file for federal taxes as married filing jointly. They originally anticipated that they will pay a total of $28,765 in taxes on an estimated taxable income of $168,400. When they filed their taxes at the end of the year, they calculated their tax burden to be $30,193 on a taxable income of $174,351. What was Joe and Sally's actual average tax rate at the end of the year?

Accepted Answer

The actual average tax rate is calculated by dividing the total tax paid by the taxable income. In this case, the actual average tax rate is $30,193 / $174,351 = 17.32%.

Question 15

To which of the following does the marginal tax rate apply?

Accepted Answer

The answer of To which of the following does the...

Question 16

The reduction in taxes owed as a result of a financial decision is known as the

Accepted Answer

The marginal tax effect refers to the change in taxes owed due to a financial decision, as it impacts the marginal tax rate applied to the last dollar of income.

Question 17

When a tax system is progressive, with higher rates on higher levels of income, your average tax rate will always be _______ your marginal rate.

Accepted Answer

In a progressive tax system, the marginal tax rate (the rate on the last dollar earned) is higher than the average tax rate (total taxes paid divided by total income), because higher rates apply only to income above certain thresholds.

Question 18

Sue and Jenny both earn gross income of $40,000 per year. Jenny qualifies for a $1,000 child tax credit but Sue does not, because she does not have children. All other things being equal, who will have the higher tax rate? (Select any two.)

Accepted Answer

The answer of Sue and Jenny both earn gross income...

Question 19

You are single with a $67,200 annual salary and a taxable income of $55,000. Your marginal tax rate is 22%, and you owe $7,959 in taxes. What is your average tax rate?

Accepted Answer

The answer of You are single with a $67,200 annual...

Question 20

Income levels applicable to each marginal tax bracket are adjusted each year based on

Accepted Answer

Income levels for tax brackets are adjusted annually for inflation to prevent "bracket creep," where taxpayers are pushed into higher tax brackets due to inflation rather than an actual increase in real income.

Quiz 4: Tax Planning