Taxes

Filing Status

A category that defines the type of tax return form an individual will use. Closely tied to marital status, it determines the size of your tax brackets and how much of your income is taxed at each rate.

Standard Deduction

A dollar amount that reduces your taxable income. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on a 1040.

W-4

A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer.

Medicare

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

Medicaid

A government-run insurance program that provides healthcare assistance to poor Americans.

Corporate Income Tax

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

Social Security

A program that provides monthly benefits to almost 60 million Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals.

Tax Bracket

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

"Sin" Taxes

A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. These type of taxes are levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal.

Real Estate Tax

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.

Estate Tax

A tax on property (cash, real estate, stock, or other assets) transferred from deceased persons to their heirs.

Excise Tax

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

Progressive Tax System

A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals.

Exemption

An amount of money you can subtract from your taxable income, just for having dependents.

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 subtract from his or her paycheck.

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; reports an employee's annual wages and the amount of taxes withheld from his or her paycheck.

1099

Form that details all "non-employee" compensation. This includes income for completing specific jobs, like freelancers or contractors who are effectively self-employed.

I-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. There are specific rules governing who qualifies, but generally they fall into two categories: a child or a relative.

Discretionary Spending

Spending by the federal government determined by legislative action. In other words, spending approved through votes by elected officials (i.e. Congress).

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. Collected or withheld from one's paycheck.

Vehicle/Property Tax

Taxes usually assessed as a percentage of the value of items you own (cars, boats, etc.). They can fall under county or state taxes, depending on where you live.

Effective Tax Rate

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

Tax Rate

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

1040

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

Dependent Exemption

You are allowed one exemption for each person you can claim as a dependent.

Personal Exemption

You are generally allowed one exemption for yourself.

FICA

a payroll tax for social security and medicare part of your withholding from your paycheck