Personal Finance: College Aid, Taxes, Paychecks & W-4 Forms

How does Social Security work as a retirement fund?

It is funded by paying social security taxes and helps with Medicare.

What is the purpose of a W-4 form?

It is a form employees give their employer to help determine federal income tax withholding.

What is the purpose of a W-2 form?

Employers provide it to employees after the end of the tax year.

What is the difference between a tax refund and taxes owed?

A tax refund occurs when you paid or had withheld more than your final tax liability.

How do tax brackets work?

Different portions of taxable income can be taxed at different rates in a progressive tax system.

What is taxable income?

The amount of income subject to income tax after applicable adjustments and deductions.

List two ways to legally reduce taxable income.

1. Use education tax benefits. 2. Contribute to a traditional IRA.

What are three important pieces of information found on a paystub?

Gross pay, federal income tax, and deductions.

How do you calculate total deductions from a paystub?

Total deductions are calculated by summing all deductions listed on the paystub.

What is the net pay if gross pay is $1,800 and total deductions are $1,437?

$362.70

What are two deductions from a paystub and what do they pay for?

Federal income tax pays for government programs; Medicare tax helps fund healthcare.

What happens if an employee has too little federal income tax withheld?

They may owe a tax bill when filing a tax return instead of receiving a refund.

Why does an employee complete a W-4 and later receive a W-2?

The W-4 determines tax withholding, and the W-2 reports earnings and taxes withheld.

How can changing the information on a W-4 affect an employee's pay?

It can affect how much tax is withheld from each paycheck.

What is financial aid?

Financial aid offers assistance in the form of grants, scholarships, and loans to help pay for college.

What is the difference between a grant, a scholarship, and a student loan?

A grant and scholarship do not need to be paid back, while a student loan does.

What is the FAFSA?

The FAFSA is an application for federal student aid that evaluates financial need.

What is the main difference between direct costs and indirect costs of attending college?

Direct costs are the estimated costs of attendance, while indirect costs are additional expenses.

What are taxes?

Payments collected by governments used for public services and programs.

List four different types of taxes.

1. Income tax - a tax on income. 2. Sales tax - tax on purchases. 3. Payroll tax - funds social security/Medicare. 4. Corporate tax - tax on business profits.

What is the difference between gross pay and net pay?

Gross pay is the total earnings before deductions; net pay is the take-home amount after deductions.

What is FICA tax?

FICA tax funds Social Security and Medicare.