Tax Unit Test Review
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. Filled out when starting a job, income or dependents change.
W-2
A 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. Usually by January 31 of the current year. Also needed to complete the 1040 & Form 1 tax forms.
Medicare
A government-run insurance program that provides healthcare assistance to elderly and disabled.
Medicaid
A government-run insurance program that provides healthcare assistance to low income earners.
Corporate Income Tax
A percentage of profits paid by a business to the federal and state government
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.
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 or cigarettes
Progressive Tax
A tax system to collect a larger percentage from high income earners than it does from low-income earners.
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. The more allowances you claim, the less income tax will be withheld from your paycheck. The fewer allowances you claim, the more income tax will be withheld from each paycheck.
Social Security
Federal Program that provides monthly benefits to 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
1099INT
Form sent by financial institutions showing interest earned for the previous year for tax purposes.
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
Net (Take-Home) Pay
Gross pay minus all deductions. The amount of compensation that the employee actually takes home.
Interest Income
Income earned through interest on savings accounts, bonds, CDs, etc.
Earned Income
Income from a job
Unearned Income
Income from interest and dividends
Dividend
Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis
Capital Gain
Profit from the sale of property or of an investment.
Dependent
Someone you financially support more than half of their financial 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
$12,400
Standard deduction for single or married filing separately for 2020 tax year.
Income Tax
Taxes paid by employees to federal and state government through a direct deduction from their paycheck
Effective Tax Rate
The actual rate you pay on your taxes, as a percentage of your overall income.
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 wage 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
Form 1040 U.S. Individual Income Tax Return
The standard form individuals file annually for federal income tax purposes.
Marginal Tax Rate
The tax bracket that your highest dollar of income falls into and therefore the highest tax rate you pay
State and Federal Government
They are the primary users of our tax money.
Increase the dollar amount taken out
What can you do on the W4 if you owed money on the 1040 form instead of getting a refund?
April 15
When people refer to "Tax Day" they mean
