Tax Chapters 1-6Questions & Answers
Correct!!!
What is a tax payment? - ANSWER•Required (i.e., not voluntary)
•Imposed by a government agency (federal, state, or local)
•Not tied directly to the benefit received by the taxpayer
Ex: Toll road- not a tax, but it is required
What is the primary purpose of taxes? - ANSWERRaise revenue to fund government
operations
What is secondary purpose of taxes? - ANSWEREncourage socially beneficial behavior
and discourage socially destructive behavior
•Charitable organizations incentivize you to donate and help to give tax relief
Carbon Tax- tax people for using carbon because it's bad for the environment
Sin Tax - ANSWERTax imposed on the purchase of goods that are considered socially
less desirable (Examples: surcharge on alcohol/tobacco; ACA shared-responsibility
payment (affordable health care act imposed a fee that is essentially a sin tax, New
York with Soda Tax)
Earmarked Tax - ANSWERTax assessed for a specific purpose (Example: education)
Income Taxes - ANSWER•Taxes in which the tax base is income
Most significant tax assessed by U.S. government
Employment Taxes - ANSWERϖ Old Age, Survivors, and Disability Insurance (OASDI)
♣ Commonly known as social security
♣ 12.4%of first 127,200 of wages
o 6.2%paid by employee; 6.2% paid by employer
o Self-employed taxpayers Have to pay both the employee and employer share of
OASDI
,Medical Health Insurance - ANSWER♣ Commonly known as Medicare
♣ 2.9% of wages
o 1.45% paid by employee; 1.45% paid by employer
o Self-employed taxpayers Have to pay both the employee and employer share of MHI
Unemployment Taxes - ANSWERϖFederal: 6.0% of first $7,000 of wages
A federal credit (capped at 5.4%) is available for employers required to pay state
unemployment taxes
Excise Taxes - ANSWER**Levied on particular products (e.g., gasoline, cigarettes,
alcohol).
**Based on quantity, not value (gallons of gasoline, packs of cigarettes, etc)
Transfer Tax - ANSWERTaxes on the transfer of wealth from one taxpayer to another.
Estate Tax - ANSWERAssessed based on the fair market value of wealth transfer upon
death
Gift Tax - ANSWERAssessed based on the fair market value of wealth transfer by gift
Types of Federal Taxes - ANSWERIndividual Income, Corporate Income, Employment,
Excise, Estate and Gift
Types of State and Local Taxes - ANSWERProperty, Sales & use, Individual Income,
Corporate, other
Income Taxes - ANSWER• Taxes in which the tax base is income
ϖ Largely conform to federal taxable income calculations with limited number of
modifications
ϖ Tax rates much lower than federal income tax rates
Sales Tax - ANSWER• (#2 source of state revenue)
ϖ Flat tax rate (varies by state)
ϖ Based on the selling price of the product or service
♣ GA state and local sales tax generally = 7% (4% state; 3% local)
, ♣ Not imposed on everything, depends on state & local government
o GA sales tax rate on groceries local taxes only (generally 3%)
ϖ Retailers responsible for collecting and remitting the tax
Use Taxes - ANSWERϖ Flat tax rate (varies by state)
ϖ Based on the retail price of goods owned, possessed or consumed within a state that
were not purchased within the state
Property Taxes - ANSWERAd valorem, Real, and Personal Property (#1 source of state
revenue)
Ad Valorem - ANSWERtaxes on both real and personal property (boats, cars, etc.)
Real Property - ANSWERϖ Land and structures permanently attached to the land
(Example: House property taxes)
Personal Property - ANSWERϖ All other types of property, both tangible and intangible
(Example: Automobile registration taxes)
General Tax Formula - ANSWER•Tax = Tax Base x Tax Rate
The tax base is what is usually taxed and is usually expressed in monetary terms
(Examples: taxable income, purchase amounts, property values, etc.)
The 3 different tax rate structures - ANSWERProportional, Progressive, Regressive
Proportional Tax Rate Structure - ANSWERϖ Tax rate: Constant throughout the tax
base
ϖ Example: Sales tax
Progressive Tax Rate Structure - ANSWER*federal tax schedule is progressive)
ϖ Tax rate: Increases as the tax base increases
ϖ Example: Income tax
Regressive Tax Rate Structure - ANSWERϖTax rate: Decreases as the tax base
increases
Example: Social security (OASDI) taxes
Marginal Tax Rate (MTR) - ANSWERTax rate that applies to the next additional
increment of a taxpayer's taxable income (or deductions)
ϖ Useful in tax planning
Correct!!!
What is a tax payment? - ANSWER•Required (i.e., not voluntary)
•Imposed by a government agency (federal, state, or local)
•Not tied directly to the benefit received by the taxpayer
Ex: Toll road- not a tax, but it is required
What is the primary purpose of taxes? - ANSWERRaise revenue to fund government
operations
What is secondary purpose of taxes? - ANSWEREncourage socially beneficial behavior
and discourage socially destructive behavior
•Charitable organizations incentivize you to donate and help to give tax relief
Carbon Tax- tax people for using carbon because it's bad for the environment
Sin Tax - ANSWERTax imposed on the purchase of goods that are considered socially
less desirable (Examples: surcharge on alcohol/tobacco; ACA shared-responsibility
payment (affordable health care act imposed a fee that is essentially a sin tax, New
York with Soda Tax)
Earmarked Tax - ANSWERTax assessed for a specific purpose (Example: education)
Income Taxes - ANSWER•Taxes in which the tax base is income
Most significant tax assessed by U.S. government
Employment Taxes - ANSWERϖ Old Age, Survivors, and Disability Insurance (OASDI)
♣ Commonly known as social security
♣ 12.4%of first 127,200 of wages
o 6.2%paid by employee; 6.2% paid by employer
o Self-employed taxpayers Have to pay both the employee and employer share of
OASDI
,Medical Health Insurance - ANSWER♣ Commonly known as Medicare
♣ 2.9% of wages
o 1.45% paid by employee; 1.45% paid by employer
o Self-employed taxpayers Have to pay both the employee and employer share of MHI
Unemployment Taxes - ANSWERϖFederal: 6.0% of first $7,000 of wages
A federal credit (capped at 5.4%) is available for employers required to pay state
unemployment taxes
Excise Taxes - ANSWER**Levied on particular products (e.g., gasoline, cigarettes,
alcohol).
**Based on quantity, not value (gallons of gasoline, packs of cigarettes, etc)
Transfer Tax - ANSWERTaxes on the transfer of wealth from one taxpayer to another.
Estate Tax - ANSWERAssessed based on the fair market value of wealth transfer upon
death
Gift Tax - ANSWERAssessed based on the fair market value of wealth transfer by gift
Types of Federal Taxes - ANSWERIndividual Income, Corporate Income, Employment,
Excise, Estate and Gift
Types of State and Local Taxes - ANSWERProperty, Sales & use, Individual Income,
Corporate, other
Income Taxes - ANSWER• Taxes in which the tax base is income
ϖ Largely conform to federal taxable income calculations with limited number of
modifications
ϖ Tax rates much lower than federal income tax rates
Sales Tax - ANSWER• (#2 source of state revenue)
ϖ Flat tax rate (varies by state)
ϖ Based on the selling price of the product or service
♣ GA state and local sales tax generally = 7% (4% state; 3% local)
, ♣ Not imposed on everything, depends on state & local government
o GA sales tax rate on groceries local taxes only (generally 3%)
ϖ Retailers responsible for collecting and remitting the tax
Use Taxes - ANSWERϖ Flat tax rate (varies by state)
ϖ Based on the retail price of goods owned, possessed or consumed within a state that
were not purchased within the state
Property Taxes - ANSWERAd valorem, Real, and Personal Property (#1 source of state
revenue)
Ad Valorem - ANSWERtaxes on both real and personal property (boats, cars, etc.)
Real Property - ANSWERϖ Land and structures permanently attached to the land
(Example: House property taxes)
Personal Property - ANSWERϖ All other types of property, both tangible and intangible
(Example: Automobile registration taxes)
General Tax Formula - ANSWER•Tax = Tax Base x Tax Rate
The tax base is what is usually taxed and is usually expressed in monetary terms
(Examples: taxable income, purchase amounts, property values, etc.)
The 3 different tax rate structures - ANSWERProportional, Progressive, Regressive
Proportional Tax Rate Structure - ANSWERϖ Tax rate: Constant throughout the tax
base
ϖ Example: Sales tax
Progressive Tax Rate Structure - ANSWER*federal tax schedule is progressive)
ϖ Tax rate: Increases as the tax base increases
ϖ Example: Income tax
Regressive Tax Rate Structure - ANSWERϖTax rate: Decreases as the tax base
increases
Example: Social security (OASDI) taxes
Marginal Tax Rate (MTR) - ANSWERTax rate that applies to the next additional
increment of a taxpayer's taxable income (or deductions)
ϖ Useful in tax planning
