Tax term

mass tax

A broad tax that affects a majority of taxpayers

Benefits received

A concept of tax fairness that states that people should pay taxes in proportion to the benefits they receive from government goods and services.

Ability to pay

A concept of tax fairness that states that people with different amounts of wealth or different amounts of income should pay tax at different rates. Wealth includes assets such as houses, cars, stocks, bonds, and savings accounts. Income includes wages, interest and dividends, and other payments.

Business

A continuous and regular activity that has income or profit as its primary purpose

foster child

A foster child is any child placed with a taxpayer by an authorized placement agency or by court order. Eligible foster children may be claimed by taxpayers for tax benefits. G

lobbyist

A person who represents the concerns or special interests of a particular group or organization in meetings with lawmakers. Lobbyists work to persuade lawmakers to change laws in the group's favor.

Federal/State e-file

A program sponsored by the IRS in partnership with participating states that allows taxpayers to file federal and state income tax returns electronically at the same time.

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.

Excise tax

A tax on the sale or use of specific products or transactions

indirect tax

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

Regressive tax

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

Personal Identification Number (PIN)

Allow taxpayers to "sign" their tax returns electronically. The PIN, a five-digit self-selected number, ensures that electronically submitted tax returns are authentic. Most taxpayers can qualify to use a PIN.

Dependency exemption

Amount that taxpayers can claim for a "qualifying child" or "qualifying relative". Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. One exemption is allowed for each qualifying child or qualifying relative claimed as a dependent.

Compulsory payroll tax

An automatic tax collected from employers and employees to finance specific programs.

Market economy

An economic system based on private enterprise that rests upon three basic freedoms: freedom of the consumer to choose among competing products and services, freedom of the producer to start or expand a business, and freedom of the worker to choose a job and employer.

gasoline excise tax

An excise tax paid by consumers when they purchase gasoline. The tax covers the manufacture, sale, and use of gasoline.

Intermediate Service Provider

Assists in processing tax return information between the ERO (or the taxpayer, in the case of online filing) and the Transmitter.

Citizen or Resident Test

Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for persons who are U.S. citizens for some part of the year or who live in the United States, Canada, or Mexico for some part of the year

Public goods and services

Benefits that cannot be withheld from those who don't pay for them, and benefits that may be "consumed" by one person without reducing the amount of the product available for others. Examples include national defense, streetlights, and roads and highways. Public services include welfare programs, law enforcement, and monitoring and regulating trade and the economy.

Bonus

Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.

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.

Form W-4, Employee's Withholding Allowance Certificate

Completed by the employee and used by the employer to determine the amount of income tax to withhold

filing status

Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married filing a separate return, head of household, and qualifying widow(er) with dependent child.

exempt (from withholding

Free from withholding of federal income tax. A person must meet certain income, tax liability, and dependency criteria. This does not exempt a person from other kinds of tax withholding, such as the Social Security tax.

Qualifying Widow(er) filing status

If your spouse died in 2009, you can use married filing jointly as your filing status for 2009 if you otherwise qualify to use that status. The year of death is the last year for which you can file jointly with your deceased spouse. You may be eligible to use qualifying widow(er) with dependent child as your filing status for two years following the year of death of your spouse. For example, if your spouse died in 2009, and you have not remarried, you may be able to use this filing status for 2010 and 2011. This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). This status does not entitle you to file a joint return.

Payroll taxes

Include Social Security and Medicare taxes.

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

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.

independent contractor

Performs services for others. The recipients of the services do not control the means or methods the independent contractor uses to accomplish the work. The recipients do control the results of the work; they decide whether the work is acceptable. Independent contractors are self-employed.

Federal Insurance Contributions Act (FICA) Tax

Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as the Social Security tax.

Financial records

Spending and income records and items to keep for tax purposes, including paycheck stubs, statements of interest or dividends earned, and records of gifts, tips, and bonuses. Spending records include canceled checks, cash register receipts, credit card statements, and rent receipts.

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.

long-distance telephone tax refund

Taxpayers are eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after Feb. 28, 2003

Electronic Return Originator (ERO)

The Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS. EROs may originate the electronic submission of income tax returns they either prepared or collected from taxpayers. Some EROs charge a fee for submitting returns electronically.

Horizontal equity

The concept that people in the same income group should be taxed at the same rate. "Equals should be taxed equally."

Deficit

The result of the government taking in less money than it spends

Electronic filing (e-file)

The transmission of tax information directly to the IRS using telephones or computers. Electronic filing options include (1) Online self-prepared using a personal computer and tax preparation software, or (2) using a tax professional. Electronic filing may take place at the taxpayer's home, a volunteer site, the library, a financial institution, the workplace, malls and stores, or a tax professional's place of business

Direct Deposit

This allows tax refunds to be deposited directly to the taxpayer's bank account. Direct Deposit is a fast, simple, safe, secure way to get a tax refund. The taxpayer must have an established checking or savings account to qualify for Direct Deposit. A bank or financial institution will supply the required account and routing transit numbers to the taxpayer for Direct Deposit.

flat tax

This is another term for a proportional tax.

Qualifying child

To be a qualifying child, the dependent must meet eight tests: (1) relationship, (2) age, (3) residence, (4) support, (5) citizenship or residency, (6) joint return, (7) qualifying child of more than one person, and (8) dependent taxpayer

Appeal

To call for a review of an IRS decision or proposed adjustment

file a return

To mail or otherwise transmit to an IRS service center the taxpayer's information, in specified format, about income and tax liability. This information-the return-can be filed on paper, electronically (e-file).

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.

nonrefundable credit

When the amount of a credit is greater than the tax owed, taxpayers can only reduce their tax to zero; they cannot receive a "refund" for any excess nonrefundable credit.

Married Filing Joint filing status

You are married and both you and your spouse agree to file a joint return. (On a joint return, you report your combined income and deduct your combined allowable expenses.)

Married Filing Separate filing status

You must be married. This method may benefit you if you want to be responsible only for your own tax or if this method results in less tax than a joint return. If you and your spouse do not agree to file a

Head of Household filing status

You must meet the following requirements: 1. You are unmarried or considered unmarried on the last day of the year. 2. You paid more than half the cost of keeping up a home for the year. 3. A qualifying person lived with you in the home for more than half the year (except temporary absences, such as school). However, a dependent parent does not have to live with the taxpayer.

employee

a worker who is hired to perform a job