Income and Taxes
Summary
This chapter demystifies income and taxation, helping you understand how to read your paycheck and navigate the tax system. You'll learn the difference between gross and net income, how paycheck withholding works, and the purpose of key tax forms like the W-4, W-2, and Form 1040. The chapter covers federal income tax, state income tax, and FICA taxes, explaining concepts like marginal vs. effective tax rates and tax brackets. You'll learn about tax filing requirements, the difference between standard deductions and itemizing, and how tax credits differ from tax deductions. The chapter also introduces tax planning strategies and tax-advantaged accounts that can help you minimize your tax burden and maximize your wealth over time.
Concepts Covered
This chapter covers the following 19 concepts from the learning graph:
- Gross Income
- Net Income
- Paycheck Withholding
- W-4 Form
- W-2 Form
- Federal Income Tax
- State Income Tax
- FICA Taxes
- Tax Filing
- Form 1040
- Standard Deduction
- Itemized Deductions
- Tax Credits
- Tax Deductions
- Marginal Tax Rate
- Effective Tax Rate
- Tax Brackets
- Tax Planning
- Tax-Advantaged Accounts
Prerequisites
This chapter builds on concepts from:
- Chapter 1: Foundational Financial Concepts - Income statements and financial decision making
- Chapter 5: Saving and Investing - Investment account types
References
- Understanding Taxes - Your First Job - 2024 - IRS - Official IRS educational resource teaching students about tax responsibilities when starting their first job, focusing on Form W-4 completion, the pay-as-you-go withholding system, and maintaining financial records.
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