PF 02 Tax Terms

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.

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

1099-INT

A form that shows the interest income earned during the year

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

dependent

A person who depends on you for more than half of their financial support who can be "claimed" on a tax return to reduce your taxable income.

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.

excise tax

A tax paid on purchases of a specific good, like gasoline or cigarettes.

total income

All taxable income received, including wages, tips, salaries, interest, dividends, unemployment compensation, alimony, and so forth

tax credit

An amount subtracted directly from the tax owed

worker's compensation

An insurance plan that pays medical and disability benefits to workers injured on the job

deductions

Expenses the law allows the taxpayer to subtract from adjusted gross income

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 by Jan 31 to report the employee's annual wages and taxes withheld from their paycheck the previous year.

interest income

Income earned through interest on savings accounts, bonds, CDs, etc.

alimony

Money paid by one former spouse to support the other

voluntary compliance

Responsibility for preparing and filing tax returns rests with the individual

taxable income

The amount of income that is used to calculate an individual'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

1040

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

adjusted gross income

Total Income minus allowable exclusions (such as IRA contributions and educator expenses)