unit 5 discussion

unit 5 discussion - earned income credit I hope this made...

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What is gross income? What is adjusted gross income? Why are they different? Gross income is the amount that you make before deductions. For example I make $10.90 an hour for a 40 hour week I would gross $436 before any deductions were taken out. The adjusted gross income (AGI) is your gross pay minus any pre-tax deductions, examples of these would be health insurance and a 401k. Then all of your taxes are taken out like FUTA, SUTA, FICA (OASDI, HI), you finally end up with your net, or take home, pay. These amounts are different so you are not paying taxes on things like your health insurance; this actually puts you in a lower tax bracket. For example I made 23,000 all together last year but my AGI was 19,000, these amounts really make a difference when you are eligible for credits like
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Unformatted text preview: earned income credit. I hope this made sense. Terri Explain self-employment (SE) tax. Who would need to file taxes using this rate? Self-employment tax is just what it says, the taxes you pay for being self-employed. If you work for a company that company pays half of your OASDI and HI taxes, this is why only 6.2% and 1.45% come out of your check, the company pays the other half. If your self employed you are responsible for paying the entire amount (15.3%). I think this is actually a fair amount, the rates are the same for everyone, and the only difference is that working for someone else the rate gets split so you do not notice it as much. An Example of people that would have to pay this tax would be, independent contractors....
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