Consumer management paychecks and taxes

What is Gross Pay?

The total amount of money earned before any deductions (taxes, insurance, etc.) are taken out.

What is the definition of minimum wage?

The lowest hourly rate that an employer can legally pay an employee, set by federal or state law.

How is gross pay calculated?

Gross Pay = Hours Worked × Hourly Rate. Example: 40 hours × $15/hr = $600 gross pay.

What is Net Pay?

The amount of money you actually take home after all deductions are subtracted from gross pay.

How is net pay calculated?

Net Pay = Gross Pay − Deductions. Example: $600 − $150 = $450 net pay.

What are Deductions?

Amounts taken out of your paycheck for taxes and other expenses.

What are the 3 deductions that are required for Illinois workers?

1. Federal Income Tax 2. State Income Tax 3. FICA (Social Security and Medicare).

What is another way to say FICA?

Federal Insurance Contributions Act.

What does FICA include?

Social Security and Medicare taxes.

What are some voluntary deductions that workers may choose to have taken out?

Health insurance, retirement plans (401k), union dues, charitable donations, or life insurance.

Why do we pay taxes?

To fund government services and programs that benefit the public.

About what percent does the average person pay in taxes?

Around 25–30% of their income (varies by income and location).

What are the 3 levels of government to which we pay taxes?

Federal, State, and Local.

What are some services we get from the Federal level for our tax dollars?

National defense, Social Security, Medicare, interstate highways, and federal law enforcement.

What are some services we get from the State level for our tax dollars?

Public education, state highways, healthcare programs, and state police.

What are some services we get from the Local level for our tax dollars?

Police and fire departments, public schools, parks, roads, and garbage collection.

What is sales tax?

A tax added to the price of goods and services at the time of purchase.

What level(s) of government does sales tax go to?

State and local governments.

What is an excise tax?

A tax on specific goods such as gasoline, alcohol, or tobacco.

What are some examples of items that would have an excise tax?

Cigarettes, alcohol, gasoline, and luxury items.

What is property tax?

A tax based on the value of land and buildings owned.

What level(s) of government does property tax go to?

Local governments (counties, cities, school districts).

What is an estate tax?

A tax on the total value of a deceased person's estate before it is distributed to heirs.

Who typically pays the estate tax?

The estate of a deceased person (usually large estates).

What level(s) of government impose an estate tax?

Federal and sometimes state governments.

What is a gift tax?

A tax on money or property given to someone without receiving equal value in return.

What amount must be given in order to be charged a gift tax?

Over $18,000 per year (as of 2025, may change).

What level(s) of government does a gift tax go to?

Federal government.

What is income tax?

A tax on the money you earn from work and other sources of income.

What level(s) of government does income tax go to?

Federal and state governments.

What is a progressive tax?

A tax system where the tax rate increases as income increases — higher earners pay a higher percentage.

What tax is classified as a progressive tax?

Income tax.

What is a regressive tax?

A tax that takes a larger percentage from lower-income earners than from higher-income earners.

What tax is classified as a regressive tax?

Sales tax.

What is the purpose of FICA (Social Security)?

To provide benefits for retirees, disabled individuals, and survivors of deceased workers.

What is the purpose of a W4?

Tells your employer how much federal income tax to withhold from your paycheck.

When do you fill out a W4?

When you start a new job or when your financial situation changes.

What is an allowance (on a W4)?

A claim that reduces the amount of tax withheld from your paycheck.

What is the purpose of the W2?

Shows your total earnings and taxes withheld for the year; used to file your tax return.

When should you expect to receive your W2 from your employer?

By January 31 of each year.

What is the purpose of a 1099INT?

Shows the amount of interest income you earned from a bank or financial institution.

When should you expect to receive your 1099INT from your bank?

By the end of January.

What is the purpose of the 1040 form?

It’s the main tax return form used to calculate and file your federal income taxes.

When is the 1040 form due in order to file your taxes on time?

April 15 (Tax Day).

What is a dependent?

A person (usually a child or relative) who relies on you for financial support and can reduce your taxable income.