Personal Finance Chapter 3 Taxes

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

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

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.

Regressive Tax

A tax for which the percentage of income paid in taxes decreases as income increases

Proportional Tax

A tax in which the average tax rate is the same at all income levels.

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

Audit

An inspection of a filer's tax return by the IRS

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

IRS

Government Agency who is responsible for collecting taxes.

Congress

Has the power to levy taxes

Dependent

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

April 15th

Tax returns have to be filed with the IRS by this date

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

January 31st

The date by which an employer must mail a W-2 form to an employee.

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

Exemption

The set amount of money, per dependent, you can subtract from your taxable income

1040

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

Tax evasion

willful failure to pay taxes