Personal Finance - Taxes
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
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
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
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
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
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
Discretionary Spending
Spending by the federal government determined by legislative action and approved through votes by elected officials
Mandatory Spending
Spending by the federal government required by previously existing laws, including funding programs like Social Security and Medicare/Medicaid
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
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
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