Question

article: what are income taxes?
article: what is a payroll tax? (stop after \unemployment taxes\)
two of the biggest taxes we pay show up on our paystubs: income taxes and payroll taxes. review the two articles and answer the question below.

1. identify whether each of the following statements describes income taxes (i) or payroll taxes (p) or both. circle or highlight your answers.

statement	income or payroll taxes?
b. this tax is used to fund medicare and social security programs	i p
c. this tax goes into the general fund of the u.s. treasury, so it is used to fund many different government programs.	i p
d. most employees pay this tax at a standard rate of 7.65% on their wages, salaries, and tips.	i p
e. this tax uses marginal tax rates. your tax bracket depends on your income.	i p
f. this type of tax is always charged by the federal government, but an additional tax can also be charged by the state or local municipality.	i p

Explanation:

To solve this, we analyze each statement based on the definitions of income taxes (I) and payroll taxes (P):

Statement a

Income taxes are paid on various earnings (wages, capital gains, royalties, etc.). Payroll taxes are specific to wages/salaries. So this is I.

Statement b

Payroll taxes fund Medicare and Social Security. Income taxes fund general government programs. So this is P.

Statement c

Income taxes go into the U.S. Treasury’s general fund. Payroll taxes fund specific programs (Medicare/Social Security). So this is I.

Statement d

Payroll taxes have a standard rate (7.65% for FICA: Social Security + Medicare) on wages/tips. Income taxes use marginal rates. So this is P.

Statement e

Income taxes use marginal tax rates (tax bracket based on income). Payroll taxes have flat rates. So this is I.

Statement f

Income taxes are federal, and states/local can also impose them. Payroll taxes are primarily federal (with some state unemployment taxes, but the “always federal” + state/local addition fits income taxes). So this is I.

Final Answers (circle/highlight):

a. \(\boldsymbol{I}\) (leave P unmarked)
b. \(\boldsymbol{P}\) (leave I unmarked)
c. \(\boldsymbol{I}\) (leave P unmarked)
d. \(\boldsymbol{P}\) (leave I unmarked)
e. \(\boldsymbol{I}\) (leave P unmarked)
f. \(\boldsymbol{I}\) (leave P unmarked)

Answer:

To solve this, we analyze each statement based on the definitions of income taxes (I) and payroll taxes (P):

Statement a

Income taxes are paid on various earnings (wages, capital gains, royalties, etc.). Payroll taxes are specific to wages/salaries. So this is I.

Statement b

Payroll taxes fund Medicare and Social Security. Income taxes fund general government programs. So this is P.

Statement c

Income taxes go into the U.S. Treasury’s general fund. Payroll taxes fund specific programs (Medicare/Social Security). So this is I.

Statement d

Payroll taxes have a standard rate (7.65% for FICA: Social Security + Medicare) on wages/tips. Income taxes use marginal rates. So this is P.

Statement e

Income taxes use marginal tax rates (tax bracket based on income). Payroll taxes have flat rates. So this is I.

Statement f

Income taxes are federal, and states/local can also impose them. Payroll taxes are primarily federal (with some state unemployment taxes, but the “always federal” + state/local addition fits income taxes). So this is I.

Final Answers (circle/highlight):

a. \(\boldsymbol{I}\) (leave P unmarked)
b. \(\boldsymbol{P}\) (leave I unmarked)
c. \(\boldsymbol{I}\) (leave P unmarked)
d. \(\boldsymbol{P}\) (leave I unmarked)
e. \(\boldsymbol{I}\) (leave P unmarked)
f. \(\boldsymbol{I}\) (leave P unmarked)