Taxes

Paycheck Stub

A document attached to every paycheck that details your earnings and the amount withheld for taxes, health insurance, retirement funds, etc.

W-4

A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer. The W-4 form tells the employer the correct amount of tax to withhold from an employee's paycheck.

Medicare

A government-run insurance program that provides healthcare assistance to elderly Americans.

Medicaid

A government-run insurance program that provides healthcare assistance to poor Americans.

Social Security

A program that provides monthly benefits to almost 60 million Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals.

"Sin" Taxes

A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. These type of taxes are levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal.

Real Estate Tax

A tax assessed on real estate by the local government. The tax is usually based on the value of the property (including the land) you own.

Tax Bracket

A tax bracket is a range of income amounts that are taxed at a particular rate.

Progressive Tax System

A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals. Basically, taxpayers are broken down into categories based on taxable income; the more one earns, the more taxes they will have to pay once they cross the benchmark cut-off points between the different tax bracket levels.

Regressive Tax System

A tax that takes a larger percentage of income from low-income groups than from high-income groups.

Proportional Tax System

A tax that takes the same percentage of income from all income groups.

"Safety Net" Programs

A variety of government programs that benefit individuals and families with low incomes. These include food stamps, education assistance (grants and loans), housing vouchers, tax credits, job training, child care and more.

Exemption

An exemption is an amount of money you can subtract from your taxable income, just for having dependents. Personal and dependent exemptions for yourself and qualifying family members reduce the amount of income on which you will be taxed.

Allowances

Employee-claimed exemptions on the W-4 to determine how much of an employee's pay to subtract from his or her paycheck. The more allowances you claim, the less income tax will be withheld from your paycheck. The fewer allowances you claim, the more income tax will be withheld from each paycheck.

Payroll Tax

Federal and state taxes that all employers must pay, based on a percentage of the employee's salary. They go to such things as Social Security and Medicare/Medicaid.

W-2

Form that an employer must send to an employee and the IRS at the end of the year. The W-2 form reports an employee's annual wages and the amount of taxes withheld from his or her paycheck.

Discretionary Spending

Spending by the federal government determined by legislative action. In other words, spending approved through votes by elected officials (i.e. Congress).

Mandatory Spending

Spending by the federal government required by previously existing laws. This includes funding programs like Social Security and Medicare/Medicaid.

Income Tax

Taxes paid by employees to federal and state government. Collected or withheld from one's paycheck.

Vehicle/Property Tax

Taxes usually assessed as a percentage of the value of items you own (cars, boats, etc.). They can fall under county or state taxes, depending on where you live. Not all states tax personal property, however, and what is subject to personal property tax varies widely from state to state.

1040-EZ

The 1040EZ is an alternative to the Internal Revenue Service's (IRS) 1040 income tax form and offers a faster and easier way to file taxes, meant for taxpayers with rudimentary tax situations. In order to be eligible to use this form, the individual must have a taxable income of less than $100,000, interest income of $1,500 or less, possess no dependents and fulfill other requirements set by the IRS.

Tax Rate

The percentage at which taxes are paid on a dollar of income.

Withholding

The portion of an employee's wages that is not included in his or her paycheck because it goes directly to federal, state and local tax authorities.