Multiple Choice
Why is it important to pay attention to the amount of taxes withheld from each paycheck?
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9. Current Liabilities
Payroll and Payroll Taxes
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Why might an employee voluntarily have money deducted from their paycheck?
A
To pay mandatory federal income taxes
B
To pay for employer-mandated health insurance
C
To contribute to a retirement savings plan such as a 401(k)
D
To cover required Social Security contributions
Verified step by step guidance1
Understand the concept of voluntary deductions: Voluntary deductions are amounts that an employee chooses to have withheld from their paycheck for specific purposes, as opposed to mandatory deductions required by law.
Differentiate between mandatory and voluntary deductions: Mandatory deductions include federal income taxes and Social Security contributions, which are required by law. Voluntary deductions, on the other hand, are optional and depend on the employee's preferences.
Identify examples of voluntary deductions: Common examples include contributions to retirement savings plans (e.g., 401(k)), health savings accounts (HSAs), or payments for additional insurance coverage.
Analyze the given options: Review each option in the problem and determine whether it represents a mandatory or voluntary deduction. For example, federal income taxes and Social Security contributions are mandatory, while contributing to a retirement savings plan is voluntary.
Conclude why an employee might choose voluntary deductions: Employees may opt for voluntary deductions to plan for their future (e.g., retirement savings), manage healthcare costs, or take advantage of tax benefits associated with certain plans.
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