W!se Income and Employment Review

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

Excise Tax

A tax paid on purchases of a specific good, like gasoline or cigarettes

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, toward social services such as Social Security and Medicare

W-2

Form that an employer must send to an employee and the IRS at the end of the year to report the employee's annual wages and taxes withheld from their paycheck

1099

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

Hourly wage

amount of money paid for each hour worked

Salary

fixed payment for a person's work; typically does not earn overtime

Filing 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

Benefit

A cost, such as health insurance, paid in full or in part by an employer

Paycheck Stub

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

Federal Insurance Contributions Act (FICA)

A federal law that requires an employer to withhold taxes from the wages they pay their employees; the funds go toward Social Security and Medicare

W-4

A form completed by an employee to indicate his or her tax situation (exemptions, marital status, etc.) to the employer, who then withholds the corresponding amount 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

Tax Bracket

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

Standard Deduction

A standardized 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.

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

W-9

Form used by an employer to verify an employee's identity and to establish that the worker is eligible to accept employment in the United States

Dependent

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

Income Tax

Taxes paid by employees to federal and state government through a direct deduction from their paycheck

Taxable Income

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

Gross pay

The amount of money an employee earns before any taxes or other deductions are subtracted.

Tax Rate

The percentage at which taxes are paid on each dollar of income

Withholding

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

1040

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

Marginal Tax Rate

The tax bracket that your highest dollar of income falls into, and therefore the highest tax rate you pay

Rate

Wage or amount of money that you earn per unit of time such as hour or week.

Bonus

additional compensation given to an employee above his/her normal wage, usually as a reward for good performance

Family and Medical Leave Act (FMLA)

allows employees to take up to 12 weeks of unpaid leave in a 12-month period for certain medical and family situations

Workers' Compensation

an insurance program that pays benefits to workers and their families for injury, illness, or death that occurs while working on the job

Unearned income

any income that comes from sources other than employment (i.e. investments, real-estate); usually taxed at a lower rate by federal and state governments; sub categories are portfolio income and passive income

Earned income

any income that is generated by trading your time and labor; usually taxed at the highest rate by federal and state governments

Gross pay

employee's total pay before deductions; equals annual salary plus any bonuses or commissions the employee may receive

Portfolio income

income generated by selling an investment at a higher price than you paid for it

Minimum wage

lowest hourly wage employers are legally required to pay employees

Passive income

money earned on a regular basis with little or no effort required to maintain it

Social Security Act

passed in 1935, established a national social insurance program that provides federal aid for the elderly and for disabled workers.

Base pay

pay the employee receives for the work performed

Commission

percentage of the amount of a business transaction paid to a sales agent or broker

Employer

person or company who hires and and pays an individual for work done

Entrepreneur

person who starts a business venture and assumes the risk of its success or failure

Civil Rights Act of 1964

prohibits discrimination in hiring, training, and promotion on the basis of race, color, gender, religion, or national origin

Americans with Disabilities Act (ADA)

prohibits discrimination on the basis of physical or mental disabilities

Fair Labor Standards Act

protects employees from being required to work more than 40 hours in a week without extra pay

Pay period

repeating time frame that an employer uses to calculate and pay salaries and wages

Net pay

the remaining amount of an employee's gross pay after deductions (such as taxes and retirement contributions)

Net pay

the total earnings paid to an employee after payroll taxes and other deductions (a.k.a. take-home pay)

Overtime pay

wages that are earned when an employee works more than 40 hours in a week

Employment

when an employee works for an employer and gets wages/salary in return