Taxes

tax credit

government incentives that reduce taxes owed dollar-for-dollar. A $1,000 tax credit means $1,000 less in taxes for the year. Recently, credits have been offered for buying a home or buying a hybrid car

taxes

households and businesses give a certain amount of their income to the government in the form of taxes. The government—federal, state, or local— then spends this revenue on items it deems necessary for society, putting money back into the economy

payroll taxes

include social security and Medicare taxes

proportional tax (flat tax)

a tax system that requires the same percentage of income from all taxpayers, regardless of their earnings

regressive tax

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

flat tax (proportional tax)

Flat tax (Proportional tax) - A single tax rate that applies to everyone obligated to pay the tax. Ex. Sales taxes are flat taxes.

disposable income

Disposable income - The amount of income received after taxes and other deductions, available for living expenses or savings; also known as take-home pay.

earned income

Earned income - Incudes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings

estate tax

Estate Tax - a tax imposed on a decedent's property, assessed on the gross estate prior to distribution to the heirs.

excise tax

Excise Tax - A tax, similar to a sales tax, imposed on some goods, especially luxuries and cars.

exemptions

Exemptions - Taxable income or investment on which no tax is collected.

FICA

FICA - Federal Insurance and Contributions Act: The government agency that oversees payroll taxes that fund government services, such as Social Security(6.2%) and Medicare(1.45%).

federal income tax

Federal Income Tax - The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

tax return

Tax return - It is a way for the government to assess whether the appropriate amount of taxes have been paid given income

mass tax

a broad tax that affects a majority of taxpayers

tax cut

a reduction in the amount of taxes taken by the government

real estate

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

inheritance

a tax levied on the right of an heir to receive a decedent's property, the rate being a percentage of the value of the property

luxury tax

a tax on certain goods or services not considered essential and usually relatively high in price.

sin tax

a tax on goods such as tobacco and alcohol

tariff

a tax on products imported from foreign countries

sales tax

a tax on receipts from sales, usually added to the selling price by the seller

tax liability

amount owed on yearly total taxable income

wages

compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked

tax evasion

failure to pay legally due taxes

tax avoidance

legal means of decreasing your tax bill

progressive tax

one that imposes a higher tax rate as an individual's income increases

deduction

something that directly reduces taxable income; the dollar amount of the deduction is subtracted from gross income, leaving a smaller amount of income to be taxed

withholding

the amount of taxes paid per paycheck, determined by how many exemptions one can claim, and total salary or wages

net pay

the amount remaining of a paycheck after all of the payroll deductions and income tax are taken out; Also known as take-home pay, or disposable income

property tax

the annual amount of taxes paid on real or personal property

internal revenue service (IRS)

the federal agency that collects tax money

revenue

the income the nation collects from taxes

social security

the tax levied on both employers and employees used to fund the Social Security program

marginal tax rates

the tax percentage rate that applies to the last dollar one earns. Also called a tax bracket, the highest bracket (rate of taxation) one falls into at one's income level

medicare tax

used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65

adjusted gross income

your earned income and unearned income added together