Chapter 7 Income Taxes
1. The filing status of head of household is for married taxpayers who have dependents.
2. Schedule A can be filed with any tax form to itemize deductions for items such as property taxes and
charitable contributions paid.
3. A W-2 is an income statement that lists any money earned from interest.
4. An income tax filer who is single or married filing jointly, with no dependents and income less than
$100,000, may be able to file a 1040EZ form.
5. The long form, also called a 1040, is the only form that a filer can use if they have interest income from
dividends, alimony, or prize money.
6. In a progressive tax system, taxes decrease as income increases.
7. An exemption is an allowable amount that reduces a person’s taxable income. Examples of an exemption are
the taxpayer themselves and their dependents.
8. Income tax is paid on earned income such as wages and tips. Income tax is also paid on unearned income
such as interest, dividends, rental income, capital gains, and winnings.
9. Tax tables list taxable income in intervals.
10. The Mancuso family consists of 5 children, two parents, and a live-in great aunt. Mr. Mancuso supports
each family member, therefore, he can take 8 exemptions on his 1040 tax form.
11. Jennifer’s employer withholds $1,500 of her pre-tax wages in a plan that Jennifer can use to pay for
unreimbursed medical expenses, childcare, and parental care. What is this plan called?
A. individual retirement account
12. Use the 2006 tax schedule for married taxpayers filing jointly below. What equation represents the taxable
income in the interval over $123,700 but not over $188,450?
13. Lynn is a single mother with two children. She qualifies to file as head of household. Her total income
before deductions was $38,900 last year. Her total deductions were $11,450. Her employer withheld $3,150
from her pay for tax. Use the tax table below. How much more will Lynn owe in taxes?
A. $570
14. John and Loretta Smith are in the 28% tax bracket. Their joint taxable income is $134,899. If the first
$16,050 is taxed at 10%, with the remainder at 28%, how much tax will they owe?
A. $29,371.72
15. Look at the W-2 below. What is the total amount of federal, state, and local taxes that were withheld?
16. Roland had $10,500 in medical expenses last year and has no medical insurance. The IRS allows medical
expense deductions for the amount that exceeds 7.5% of a taxpayer’s adjusted gross income. If Roland’s
adjusted gross income is $31,000, how much can he claim as a medical deduction?
17. Janine rented an apartment for $900 a month. After a year, she bought a house with a monthly mortgage of
$1,250. At the end of the year, she is able to deduct $4,900 in real estate taxes and $8,400 in interest. Janine’s
taxable income is $42,000. Using the tax schedule below, how much was she able to save on her taxes due to
her home ownership?
18. Conrad and Jill have a taxable income of $63,670. They discovered that they are able to receive a $1,500 tax
credit for purchasing an energy efficient furnace. How will this tax credit affect their taxes?
A. The tax credit will increase their taxable income by $1,500.
19. Dawn is verifying the accuracy of her paycheck. She earns $12 an hour and works 40 hours each week. Her
biweekly deductions are Social Security 6.2%, Medicare 1.45%, federal withholding tax $73.25, state
withholding tax $22.50, and health insurance $37.47. What is her net pay if she is paid biweekly?
20. Which statement is NOT true about the differences between the income on a W-2 and that on a 1099 form?
A. 1099 income is untaxed where the income on a W-2 is already taxed.
21. Lisa is a single taxpayer whose total income before deductions is $57,392. She was able to reduce her total
income by $9,347 by filing Schedule A. Use the tax rate schedule below. How much did she save using
Schedule A?
22. What is the difference between a tax credit and a tax deduction?
23. Chris’ taxable income is $60,709. She is married, filing jointly. What is her tax?
24. What is the term for a Wage and Tax statement and what is its purpose?
25. Kathy and Jeff Miller have a combined income of $93,366. They have 1099 forms which report $1,200 in
interest. They also have $4,922 income from rental property. They are able to reduce their income by $3,500.
What is their adjusted gross income?
26. Abraham is a single taxpayer with no dependents. He received $297 in bank interest and $1,500 for a
educational expenses deduction. His charitable contributions were $2,000.
Use the information to complete the table below: Wages, tips, and other compensation: $47,513; Social Security
Wages: $47,513; Medicare wages: $47,513; Federal tax withheld: $4,325; State tax withheld: $2,790. Assume
$3,500 per exemption and use the tax rate for the income interval for $32,550 to $78,850 of $4,481.25 + 25%
for taxable income over $32,550.
27. Nancy does her taxes herself. She filled out this portion of Schedule A below to deduct her mortgage
interest of $7,310, her real estate taxes of $3,988, and her state income taxes of $4,080. What error did Nancy
make?
28. Maria and Juan are married, filing jointly. Their taxable income is $154,849. Use the table below to write
29. What word is synonymous for take-home pay?
30. A single mother who files head of household pays a tax of $10,881. Use the table to find her taxable income
interval.