Unit 4: Taxes

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.

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.

W4

A form completed by an employee to indicate their tax situation to the employer. The employer uses this information to withhold taxes from the employee's paycheck.

1099

A form that identifies all "non-employee" compensation such as self employed money, or money made from interest and dividends

I-9

A form used by an employer to verify an employee's identity and to establish that the worker is eligible to work in the U.S.

Medicare

A government-run insurance program that provides healthcare assistance to elderly and disabled 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. Anyone can claim.

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

Tax Credit

An amount subtracted directly from the tax owed.

Tax Deduction

An amount that can be subtracted from a person's taxable income.

Tax Refund

An amount that government gives back to a taxpayer who has paid more taxes that were due.

Earned Income

Any income (wages/salary) that is worked for.

W2

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.

Unearned Income

Income received from sources other than employment; Income that was not worked for.

Dependent

Someone you financially support by contributing at least 50% of their living expenses.

Mandatory Spending

Spending by the federal government required by previously existing laws. This includes funding programs like Social Security and Medicare/Medicaid.

Discretionary Spending

Spending by the federal government that is voted on by Congress and approved by the President every year.

Income Tax

Taxes paid by employees to federal and state government on the money they earn throughout the year.

Taxable Income

The amount of income that is used to calculate a person's income tax due.

1040

The standard IRS form that individuals can use to file their annual income tax returns.