Understanding Your Paycheck

Understanding Your Paycheck

Are you ready to test your understanding of your paycheck? This ten-question multiple-choice quiz will explore how to maneuver through your paycheck and understand all tax aspects. After completing all ten questions, click "What's my grade?" at the end of the quiz to see how you did.

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If you are paid on a "bi-weekly" basis, how many paychecks will you receive during a full year of employment?
When an individual is paid on a bi-weekly pay schedule, they are paid every other week or two weeks. Typically, the employer selects a fixed day of the week and issues paychecks every other week on that day. If you are paid on a bi-weekly basis, you will receive 26 paychecks during the standard calendar year (52 weeks per year, divided by two).

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Which of the following forms will you likely be required to complete when starting a new job?
New employees typically complete a W-4 form so that their new employer knows how much tax to withhold from the new employee's paycheck each pay period. This form provides information to the employer on the number of tax exemptions, marital status, and dependent information, which help determine the amount of tax to be withheld. The W-2 form is issued to employees at the start of each year to show the earnings and amount of tax withheld in the previous year. This information is used when filing federal and state income taxes. Form 1099 is used to report income other than wages, salaries, and tips. There are multiple variants of this form, based on the type of income the individual is reporting.

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To claim a child as a 'dependent,' which of the following conditions DO NOT have to be met?
According to the Internal Revenue Service, there is no age limit on claiming a child as a dependent if the child meets the qualifying relative test. To meet this test, the child must be younger than the filer, be younger than 19 years of age or be a student younger than 24 years. Children of any age can be claimed as dependent if they are permanently and totally disabled.

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Which of the following terms represents your paycheck amount BEFORE any taxes and other deductions are taken out?
An individual's gross pay is their total compensation, including wages, salaries, commissions, tips, bonuses, and any other type of earnings for that paycheck period. It is also the total amount reported before any payroll deductions are made. Typical deductions include FICA taxes, income tax withholding, health insurance premiums paid by the employee, contributions to the employee's retirement account, and other types of deductions. Net pay is the employee's amount after deductions are withheld or paid out of their gross pay.

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For 2022, the maximum taxable earnings amount for Social Security (OASDI) taxes is:
By statute, the tax rate for Social Security, or OASDI (Old Age, Survivors, and Disability Insurance) taxes is set at 6.2 percent for both the employer and the employee. Self-employed individuals will pay the combined rate of 12.4 percent. Social Security taxes do work off a maximum wage base, limiting the amount of Social Security taxes paid each year by both employees and employers. It is adjusted each year by the Social Security Administration. For the calendar year 2022, that maximum wage base is the first $147,000 of income.

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What government programs do your FICA taxes fund?
FICA is known as the Federal Insurance Contributions Act. It mandates that both employer and employee must pay the same rate into both Social Security and Medicare out of their paycheck. It is a mandatory payroll deduction that funds older Americans their Social Security retirement and Medicare benefits.

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Who is responsible for paying unemployment taxes?
Unemployment Insurance is a joint federal and state program that is financed by employer payroll taxes. Generally, employers must pay both state and federal unemployment taxes if wages that employees receive pass a threshold amount if employees work more than a certain number of weeks in a calendar year.

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You may only claim "Head of Household" status for tax-filing purposes on your W-4 form if you:
The Internal Revenue Service recognizes five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. To qualify as a Head of Household, you must be unmarried (or considered unmarried on the last day of the tax filing year), your spouse didn´t live in your home the last 6 months of the tax year, you paid for more than half the cost of keeping up your home, and that home was the primary residence of your child, stepchild or foster child for 6 months or greater during that year. You also must be able to claim an exemption for that child.

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Which of the following are deducted from your paycheck on a pre-tax basis?
Pre-tax payroll deductions lower an employee's taxable wages and are subtracted from gross wages before tax withholding is calculated. Typically, health insurance, life insurance, flexible spending accounts, and retirement contributions are considered pre-tax payroll deductions that will lower an employee's tax liability.

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By federal law, companies with U.S. employees are required to send each employee their W-2 form, which shows income earned in the prior year by what date in the next calendar year?
According to the Internal Revenue Service, every employer engaged in a trade or business who pays $600 or more in employee compensation for the year must file a Form W-2 for each employee. Copies of the W-2 form must be mailed out to employees no later than January 31 of the next calendar year.

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