Question 1

How is federal income tax calculated?

Accepted Answer

Federal tax uses marginal brackets — you pay the lower rates on the lower income tiers, not your full income at the top rate. For example, at $60,000/year: 10% on the first $11,925, 12% on $11,925–$48,475, and 22% on the remainder. Your effective (average) tax rate is much lower than your marginal rate.

Question 2

What is FICA tax?

Accepted Answer

FICA stands for Federal Insurance Contributions Act. It includes two taxes: Social Security (6.2% up to the wage base of $176,100 in 2025) and Medicare (1.45% on all wages). Your employer matches these contributions. Self-employed people pay both halves (15.3% total, but can deduct half).

Question 3

What deductions reduce my taxable income?

Accepted Answer

Pre-tax deductions include: 401(k) and 403(b) contributions (up to $23,500 in 2025), traditional IRA contributions, health insurance premiums paid pre-tax through an employer, HSA contributions (up to $4,300 single), and FSA contributions. These reduce your taxable income dollar-for-dollar.

Question 4

What is the difference between gross and net pay?

Accepted Answer

Gross pay is your salary or hourly rate before any deductions. Net pay (take-home pay) is what you actually receive after federal income tax, FICA taxes, state income tax, and any pre-tax benefit deductions are withheld. For most full-time workers, net pay is 65–80% of gross pay depending on income level and deductions.

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