Financial Literacy: Taxes: How They Work and Where They Go Worksheet

Question 1

Define a tax in your own words. Then give two examples of taxes a person might pay in everyday life.

Accepted Answer

A tax is money that people or businesses are required to pay to the government. Examples include income tax taken from wages and sales tax paid when buying goods.

Question 2

A student earns $320 from a part-time job. If 10% is withheld for federal income tax, how much is withheld and how much pay remains before any other deductions?

Accepted Answer

The amount withheld is $32 because 10% of $320 is $32. The remaining pay before any other deductions is $288.

Question 3

A city uses tax money to fund public schools, road repairs, police, firefighters, libraries, and parks. Choose three services from this list and explain why they are considered public services.

Accepted Answer

Public schools, road repairs, and firefighters are public services because they are provided for the community and paid for with public funds. They benefit many people, not just one customer.

Question 4

A jacket costs $75. The local sales tax rate is 8%. What is the sales tax, and what is the total price of the jacket?

Accepted Answer

The sales tax is $6 because 8% of $75 is $6. The total price of the jacket is $81.

Question 5

Look at a simple paycheck where gross pay is $1,000, federal income tax withheld is $120, state income tax withheld is $40, Social Security tax is $62, and Medicare tax is $14.50. What is the net pay?

Accepted Answer

The total deductions are $236.50. The net pay is $763.50 because $1,000 minus $236.50 equals $763.50.

Question 6

Explain the difference between a tax deduction and a tax credit.

Accepted Answer

A tax deduction lowers the amount of income that is taxed. A tax credit directly lowers the amount of tax owed, so a $500 credit reduces the tax bill by $500.

Question 7

A worker has taxable income of $42,000. The first $11,000 is taxed at 10%, and the income from $11,001 to $42,000 is taxed at 12%. Estimate the total federal income tax owed using these brackets.

Accepted Answer

The first $11,000 is taxed at 10%, which equals $1,100. The remaining $31,000 is taxed at 12%, which equals $3,720. The total tax owed is $4,820.

Question 8

Why is a marginal tax rate different from an effective tax rate?

Accepted Answer

A marginal tax rate is the rate paid on the next dollar of taxable income. An effective tax rate is the average rate paid across all taxable income after applying the tax brackets.

Question 9

A homeowner's house is assessed at $240,000. The property tax rate is 1.25% per year. How much property tax does the homeowner owe for the year?

Accepted Answer

The homeowner owes $3,000 in property tax because 1.25% of $240,000 equals $3,000.

Question 10

A state charges an excise tax of $0.50 per gallon of gasoline. A driver buys 14 gallons. How much excise tax is included in the purchase?

Accepted Answer

The excise tax is $7.00 because 14 gallons times $0.50 per gallon equals $7.00.

Question 11

A pie chart shows a local government's budget: 35% education, 25% public safety, 15% transportation, 10% parks and libraries, and 15% other services. If the total budget is $20 million, how much money goes to education and public safety combined?

Accepted Answer

Education and public safety together receive 60% of the budget. Sixty percent of $20 million is $12 million.

Question 12

Explain why governments collect taxes instead of relying only on voluntary donations.

Accepted Answer

Governments collect taxes because public services require stable and predictable funding. Voluntary donations would likely be uneven and may not provide enough money for services like schools, roads, emergency services, and national defense.

Question 13

A city is deciding whether to raise sales tax by 0.5 percentage points to pay for bus improvements. Give one possible benefit and one possible drawback of this plan.

Accepted Answer

One possible benefit is that improved buses could help more people get to school, work, and appointments. One possible drawback is that shoppers would pay slightly more when buying taxable goods.

Question 14

Study a bar graph comparing tax sources for a state: individual income tax $50 billion, sales tax $35 billion, corporate tax $12 billion, and property tax $8 billion. Which source brings in the most revenue, and how much more does it bring in than sales tax?

Accepted Answer

Individual income tax brings in the most revenue. It brings in $15 billion more than sales tax because $50 billion minus $35 billion equals $15 billion.

Question 15

A person says, "I do not use the public library, so none of my tax money should support it." Write a short response explaining how taxes often fund shared community resources, even when individuals use them differently.

Accepted Answer

Taxes often fund shared resources because communities need services that are available to everyone, even if each person uses them differently. A public library may support students, job seekers, families, and community programs, which can benefit the whole community over time.

Financial Literacy: Taxes: How They Work and Where They Go

Related Cheat Sheets

More Financial Literacy Worksheets

More Grade 9-12 Worksheets