Taxes Review 1

FICA

federal Insurance Contributions Act (FICA) is a U.S. law that creates a payroll tax requiring a deduction from the paychecks of employees as well as a contribution from employers. The withheld amounts go towards the funding of the Social Security program and Medicare.

Tax Credit

an amount of money that can be offset against a tax liability.

Filing status

Filing status is an important factor when computing taxable income under the federal income tax in the United States. The federal tax filing status defines the type of tax return form an individual will use. Filing status is based on marital status and family situation.

Lifetime learning credit

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. There is no limit on the number of years the lifetime learning credit can be claimed for each student. A tax credit reduces the amount of income tax you may have to pay.

Taxable interest income

Income generated from investments in interest-bearing financial instruments or from loans that is includable as ordinary income for tax purposes. Generally, all interest-bearing financial instruments and accounts generate taxable interest except tax exempt bonds issued by states and municipalities.

Net Pay

Individuals commonly mistake net pay and take-home pay with gross pay, and there are vast differences that should be understood. Net pay is the amount one receives after taxes and deductions have been withheld during a pay period.

Payroll tax rates

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories: deductions from an employee's wages, and taxes paid by the employer based on the employee's wages.

Tax deduction

Tax deduction is a reduction of income that is able to be taxed, and is commonly a result of expenses, particularly those incurred to produce additional income. The difference between deductions, exemptions and credit is that deductions and exemptions both reduce taxable income, while credits reduce tax.

Tax-exempt interest income

That $50 is income to John, which is normally taxable. However, because municipal bonds are tax-free securities, John's interest is tax-exempt. Taxpayers are required to report the amount of tax-exempt interest they receive on Form 1040 or Form 1040A.

Child Tax Credit

The Child Tax credit is a credit given to taxpayers for each dependent child who is under the age of 17 at the end of the tax year. The Child Tax credit is a nonrefundable credit that reduces the taxpayer's liability on a dollar-for-dollar basis.

Earned Income Credit

The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children.

Social Security tax rate

The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.

Amount due

The total sum of money due for the purchase of a good or service that must be paid by the set due date. In relation to taxes, the money owed to the government when required tax amount totals a greater number than total tax payments previously made.

Interest

money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

preparation options

options that a individual can put into place in case of emergency

Personal Exemptions

the process of exempting a person from paying taxes on a specified amount of income for themselves and their dependents.

Federal Income Tax

A federal income tax is a tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities. Federal income taxes are applied on all forms of earnings that make up a taxpayer's taxable income, such as employment earnings or capital gains.

Nonrefundable tax credit

A tax credit that can't reduce the amount of tax owed to less than zero. If the credit were able to reduce the amount of tax owed to less than zero, the taxpayer would be entitled to a payment from the government.

American opportunity credit

A tax credit that enabled more student and parents to pay for part of their college expenses in the 2009 and 2010 tax years by expanding the existing Hope tax credit.

Medicare Tax

An employee's earnings that are subject to a U.S. payroll tax known as the "Medicare tax." Similar to the other U.S. payroll tax - Social Security - the Medicare tax is used to fund the government's Medicare program, which provides subsidized healthcare and hospital insurance benefits to retirees and the disabled.

Gross Pay

Gross salary is the term used to describe all of the money you've made while working at your job, figured before any deductions are taken for state and federal taxes, Social Security and health insurance. If you work more than one job, you'll have a gross salary amount for each one.

Medicare Tax Rate

Medicare tax. ... This payroll tax is withheld from employees' payroll checks and is also matched by the employer. The employee and the employer each pay the Medicare tax of 1.45% of all wages and salaries. As a result, the employer must remit to the federal government 2.9% of its employees' wages and sala

Self-Employment tax

Money that a small business owner must pay to the federal government to fund Medicare and Social Security. Self-employment tax is due when an individual has net earnings of $400 or more in self-employment income over the course of the tax year.

Dependency exemption

A dependent is your qualifying child or qualifying relative. If you are entitled to claim an exemption for a dependent, that dependent can't claim a personal exemption on his or her own tax return.

Tax Refund

A tax refund is the difference between taxes paid and taxes owed. Each year (or each quarter, in some cases) a taxpayer submits a tax return that calculates his or her federal income taxes owed. The taxpayer then submits the tax return electronically or via mail and the IRS reviews the information.

refundable tax credit

because they can reduce your tax liability below zero and allow you to receive a tax refund. If you qualify for a refundable credit and the amount of the credit is larger than the tax you owe, you will receive a refund for the difference.