Taxes Vocabulary - Payroll Taxes

W-4

a form that tells the employer the amount of tax to withhold from an employee's paycheck based on their marital status, number of allowances and dependents, and other factors.

Tax return

a form used to file income taxes

Dependent

a person who relies on another, especially a family member, for financial support.

Personal exemption

a set amount that taxpayers may subtract from their gross income for themselves, their spouse, and any dependents

Tax deductions

a variable amount that taxpayers may subtract from their gross income

Payroll taxes

taxes paid on the wages and salaries of employees, which are used to finance social insurance programs, such as Social Security and Medicare.

Allowance

an exemption that reduces how much income tax an employer deducts from an employee's paycheck.

W-2

known as the Wage and Tax Statement, reports the employee's annual wages and the amount of taxes withheld from their paychecks.

Withholding

taking tax payments out of an employee's pay before he or she receives it

Gross Pay

the amount of money an employee receives before any taxes and deductions are taken out.

Net Pay

the amount of pay an employee takes "home" after taxes and other deductions.

Taxable income

the earnings on which tax must be paid; total income minus exemptions and deductions