Contractor License Practice Exam

What type of tax is commonly applied at both the state and federal levels on employee earnings?

1. Federal Income Tax

2. Corporate Tax

3. Property Tax

4. Excise Tax

The correct answer is: Federal Income Tax

The chosen answer, which is Federal Income Tax, is correct because it is a tax levied on an individual’s earnings and is applicable at both the federal level and often at the state level. Federal Income Tax is based on the income an employee earns, and it is collected directly from their paycheck through a withholding process. This tax is essential for funding various government programs and services at both the federal and state levels. Additionally, while corporate tax applies to the earnings of corporations and property tax relates to the value of real estate, these do not pertain to employee earnings. Excise tax is a specific tax on particular goods and services rather than on earnings directly. Therefore, Federal Income Tax is the primary type of tax that applies to employees’ incomes at both levels of government.