Test your knowledge

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What is the name of the United States' tax collection agency?

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The federal government

The Internal Revenue Service

The State Department

The Treasury

The Internal Revenue Service. The Internal Revenue Service is the agency that collects taxes for the United States.

Only employees pay Social Security taxes on their earnings.

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True

False

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

Many retirement plans are tax-deferred. This means that the earnings that build up in them are not taxed until you take them out.

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True

False

True. To be tax-deferred means that taxes are not levied until sometime later; in the case of retirement plans, that means when you finally take the money out.

Which of the following is true regarding tax credits?

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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.

The federal tax rate you pay will vary depending on your age.

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True

False

False. It varies depending on your filing status.

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