Taxes

tax exemption

A part of a person's income on which no tax is imposed.

dependent

A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption.

nullification

A state's refusal to recognize or obey a federal law.

voluntary compliance

A system of compliance that relies on individual citizens to report their income freely and voluntarily, calculate their tax liability correctly, and file a tax return on time.

sin tax

A tax on goods such as tobacco and alcohol.

revenue tariff

A tax on imported goods levied primarily to generate revenue for the federal government.

tariff

A tax on products imported from foreign countries.

sales tax

A tax on retail products based on a set percentage of retail cost.

luxury tax

A tax paid on expensive goods and services considered by the government to be nonessential.

indirect tax

A tax that can be shifted to others, such as business property taxes.

user tax

A tax that is paid directly by the consumer of a good, product, or service.

regressive tax

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

proportional tax

A tax that takes the same percentage of income from all income groups.

exemptions

Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. While each is worth the same amount, different rules apply to each

tax avoidance

An action taken to lessen tax liability and maximize after-tax income.

tax deduction

An amount (often a personal or business expense) that reduces income subject to tax.

user fees

An excise tax, often in the form of a license or supplemental charge, levied to fund a public service.

salary

Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked, such as weekly or monthly

commission

Compensation received by an employee for services performed. Commissions are paid based on a percentage of sales made or a fixed amount per sale.

wages

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

resources

Factors needed to produce goods and services (natural, human, and capital goods).

support

For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and transportation. It also includes welfare, food stamps, and housing provided by the state. Support includes all income, taxable and nontaxable.

single filing status

If on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree and you do not qualify for another filing status

taxable interest income

Interest income that is subject to income tax. All interest income is taxable unless specifically excluded.

refund

Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

amount due

Money that taxpayers must pay to the government when the total tax is greater than their total tax payments

withholding ("pay-as-you-earn" taxation)

Money, for example, that employers withhold from employees paychecks. This money is deposited for the government. (It will be credited against the employees' tax liability when they file their returns.) Employers withhold money for federal income taxes, Social Security taxes and state and local income taxes in some states and localities.

gross income

Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment compensation and certain scholarships. It does not include welfare benefits and nontaxable Social Security benefits.

underground economy

Money-making activities that people don't report to the government, including both illegal and legal activities

Social Security tax

Provides benefits for retired workers and their dependents as well as for the disabled and their dependents. Also known as the Federal Insurance Contributions Act (FICA) tax.

standard deduction

Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency.

taxes

Required payments of money to governments that are used to provide public goods and services for the benefit of the community as a whole.

self-employment profit

Self-employment income minus self-employment expenses, when self-employment income is greater than self-employment expenses.

self-employment loss

Self-employment income minus self-employment expenses, when self-employment income is less than self-employment expenses

Transmitter

Sends the electronic return data directly to the IRS.

transaction taxes

Taxes on economic transactions, such as the sale of goods and services. These can be based on a set of percentages of the sales value (ad valorem-sales taxes), or they can be a set amount on physical quantities ("per unit"-gasoline taxes).

income taxes

Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes).

property taxes

Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

interest

The charge for the use of borrowed money.

vertical equity

The concept that people in different income groups should pay different rates of taxes or different percentages of their incomes as taxes. "Unequals should be taxed unequally."

Internal Revenue Service (IRS)

The federal agency that collects income taxes in the United States.

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.

interest income

The income a person receives from certain bank accounts or from lending money to someone else.

revenue

The income the nation collects from taxes.

tax code

The official body of tax laws and regulations.

tax shift

The process that occurs when a tax that has been levied on one person or group is in fact paid by others.

inflation

The simultaneous increase of consumer prices and decrease in the value of money and credit.

qualifying relative

There are tests that must be met to be a qualifying relative, they are: (1) not a qualifying child, (2) member of household or relationship, (3) citizenship or residency, (4) gross income, (5) support, (6) joint return, and (7) dependent taxpayer.

transmit

To send a tax return to the IRS electronically. Tax returns prepared on paper can be sent through the mail.

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.