Question

1. why are taxes automatically deducted from many paychecks?

a. to make budgeting easier
b. because employers are required to withhold them
c. to increase your credit score
d. to reduce inflation

1. which is an example of a voluntary deduction?

a. federal income tax
b. social security
c. medicare
d. retirement contributions

1. what is the purpose of diversification?

a. investing all money in one stock
b. avoiding the stock market
c. spreading investments to reduce risk
d. guaranteeing profits

1. if you start investing earlier rather than later, you benefit mostly from:

a. higher tax rates
b. compound growth over time
c. lower hourly wages
d. fewer financial responsibilities

1. which form might an employer send you to help file taxes?

a. w-2
b. drivers license
c. passport
d. report card

1. if too much tax is withheld from your paycheck, you may receive a:

a. bill
b. penalty
c. refund
d. citation

Explanation:

1. Employers have a legal obligation to withhold taxes from employee paychecks and remit them to tax authorities.
2. Voluntary deductions are optional; retirement contributions are chosen by the employee, unlike mandatory taxes.
3. Diversification is a risk management strategy that spreads investments across different assets to lower overall risk.
4. Compound growth allows earnings on investments to generate additional earnings over time, with longer time horizons amplifying this effect.
5. The W-2 form summarizes an employee's annual wages and the taxes withheld by the employer, which is required for filing income taxes.
6. If an employee has more taxes withheld than their actual tax liability, the tax authority returns the excess amount as a refund.

Answer:

1. B. Because employers are required to withhold them
2. D. Retirement contributions
3. C. Spreading investments to reduce risk
4. B. Compound growth over time
5. A. W-2
6. C. Refund