Taxes vocabulary

Filling Status

A category that defines the type of tax return an individual will use, primarily based on marital status; it also determines the size of your tax brackets and how much of your income is taxed at each rate

Paycheck Stub

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

Standard deduction

A dollar amount that reduces your taxable income, specifically for individuals who do not receive additional benefit by itemizing their deductions into medical expenses, donations, etc

Federal Insurance Contributions Act (FICA)

A federal law that requires an employer to withhold taxes from the wages they pay their employees

Social security

A federal program that provides monthly benefits to millions of Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals

W-4

A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer who then withholds the corresponding amount you of taxes from each paycheck

Medicare

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

Medicaid

A government-run insurance program that provides healthcare assistance to low income Americans

Corporate tax

A percentage of profits paid by a business to the federal and state government

tax bracket

A range of income amounts that are taxed at a particular rate

Excise tax

A tax paid on purchases of a specific good

Progressive tax

A tax system that uses tax brackets to collect a larger percentage from the income of high-income earners than it does from low-income earners

Audit

An inspection of a filer's tax return by the IRS

Allowances

Employee-claimed exemptions on the W-4 to determine how much of an employee's pay to withhold from his or her paycheck for taxes

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 to report the employees annual wages and taxes withheld from their paycheck

1099

Form that details all "non-employee" compensation including for specific jobs like freelancers or contractors

Interest income

Income earned through interest in savings accounts, bonds, CDs, etc.

dividend

Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis

dependent

Someone you financially support who can be "claimed" on a tax return to reduce your taxable income and lower your taxes

Discertionary spending

Spending by the federal government determined by legislative action and approved through votes by elected officials

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 through a direct deduction form their paycheck

Effective tax rate

The actual rate you pay on your taxes, as a percentage of your overall income.

Taxable income

The amount of income that is used to calculate an individual's or a company's income tax due.

Tax rate

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

Withholding

The portion of an employees wages that is not included in their paycheck because it goes directly to federal, state, and local taxes

Exemption

The set amount of money, per dependent, you can subtract from your taxable income

1040

The standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns.

capital gain

the profit from the sale of assets such as stock or bond, calculated by subtracting the price you initially paid from the price you then sold it for