Test your knowledge

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Personal information you will need to prepare your tax return includes _______.

Your former address

Your Social Security number

Your parents' names

Your Social Security number. Personal information you will need to prepare your tax return includes your Social Security number.

Only employees pay Social Security taxes on their earnings.

True

False

False. Employers pay the same amount on behalf of their employees, according to how much the employees pay.

Which of the following is true regarding tax credits?

A tax credit reduces your taxable income as reported on Form 1040.

A tax credit reduces the actual tax you owe.

For most taxpayers, the standard tax credit will be larger and more valuable than itemizing your credits.

A tax credit reduces the actual tax you owe. Within limits, a dollar of credit reduces your tax by a dollar.

What type of tax increases as your income increases?

Progressive tax

Regressive tax

Neither of the above

Progressive tax. Income tax is an example of a progressive tax.

How do IRAs, 401k plans, health savings accounts and flexible spending accounts help lower your income taxes?

You get to deduct the money you contribute to them from your income.

Participating in one of these plans means you don't have to pay any taxes at all.

They don't actually help lower your income taxes.

You get to deduct the money you contribute to them from your income. When you deduct the contributions you make to them, there is less money for you to be taxed on.