Chapter P3, Problem 3RQ

To determine

Four different types of taxes withheld from a paycheck and what is the money ultimately used for.

Explanation of Solution

The taxes that are withheld from paycheck include the following types:

1. Social Security Tax: when a person is earning retirement benefits such as money on retirement then, he/she pays taxes on social security. This tax is deducted from the paycheck. therefore, it is a tax that is withheld from a paycheck.
2. Federal income tax: The taxes which are imposed by the federal government and states by applying tax rates that will increase with the increase in income and decrease with the decrease in income such as federal tax brackets are used to impose taxes on income. This tax is also withheld from a paycheck.
3. Medicare taxes: A medicare tax is also deducted from the paycheck which is used to fund the medical and health system.
4. State income tax: A fixed tax charged by certain states on the income of an individual or corporation is the state income tax that is withheld from a paycheck.

The money is ultimately used for healthcare services, post-retirement schemes, or spendings and welfare programs such as employment programs.

Economics Concept Introduction

Introduction: Taxes that are withheld from paycheck refers to the amount of income tax that someone contributes from each paycheck and this tax depends on several factors such as total annual earnings or income.