Economics & Personal Finance Honors - Unit 3: Taxation - Taxation Vocabulary

Econ & Pers Finance: Unit 3 (Taxation) Vocabulary: Income & Tax Documents, Types of Taxes, Tax Filing & Compliance, & Tax Principles & Government Revenue.

Gross Income

All the income you receive before certain adjustments or deductions are subtracted. N.b. It may include wages, tips, or other income.

Adjusted Gross Income (AGI)

Gross income minus certain allowed adjustments. It is calculated before subtracting the standard or itemized deduction.

Net Income

The amount left after certain deductions or taxes are taken out. On a paycheck, net pay is the amount you take home.

Taxable Income

The amount of income used to calculate your tax alter applicable deductions are subtracted.

Tax Liability

The total amount of tax you owe for a particular tax year.

Tax Deduction

An amount that can be subtracted from income when figuring taxable income.

Standard Deduction

A set amount that eligible taxpayers can subtract from income instead of listing individual deductions.

Itemized Deductions

Specific eligible expenses that a taxpayer lists and adds together to claim deductions instead of taking the standard deduction.

Tax Credit

An amount subtracted from the tax you owe. A credit reduces your tax bill directly.

Dependents

A qualifying child or relative whom a taxpayer may be able to claim for certain tax benefits. There are specific rules about age, relationship, income, residence, and support.

Tax Exemption

A special exclusion or reduction under tax rules. The term can mean different things in different contexts.

Form 1040

The main form most individuals use to file a federal income tax return. Allows subtracting a standard amount from income without itemizing.

Form W-2

A form from an employer reporting an employee's wages, tips, and taxes withheld.

Form W-4

A form an employee gives an employer to help determine how much federal income tax to withhold from each paycheck.

Pay Stub

A record showing an employee's pay for a period, taxes, other deductions, and take-home pay.

Gross Pay

Pay earned before paycheck deductions.

Net Pay

Take-home pay after paycheck deductions.

Deductions from Pay

Amounts taken out of a paycheck, such as taxes or insurance costs.

Year to Date (YTD)

The total amount earned or deducted from the beginning of the year through the current pay period.

Tax Withholding

Income tax an employer takes out of an employee's pay and sends to the government.

Taxable Tips

Tips that workers generally must report as income. N.b. Some qualified tips may be eligible for a federal deduction under current law, but that does not mean workers can leave them unreported.

Federal Income Tax

A tax on income collected by the federal government.

State Income Tax

A tax on income collected by a state government.

Local Tax

A tax collected by a local government, such as a county or city.

Sales Tax

A tax collected by a local government. E.g. County or city.

Property Tax

A tax based on the value of property, such as a house or land.

Excise Tax

A tax on a particular good or activity, such as gasoline or cigarettes.

Payroll Tax

A tax connected to wages and employment.

Social Security Tax

A payroll tax that helps fund Social Security benefits.

Medicare Tax

A payroll tax that helps fund Medicare.

FICA

The abbreviation for the Federal Insurance Contributions Act taxes, which include Social Security and Medicare taxes. Employees and employers each pay a share of these taxes.

Progressive Tax

A tax system in which the tax rate generally rises as income rises.

Regressive Tax

A tax that takes a larger share of income from people with lower incomes than from people with higher incomes.

Proportional Tax

A tax that uses the same percentage rate regardless of income.

Internal Revenue Service (IRS)

The federal agency responsible for administrating federal tax laws and collecting federal taxes. Consequences the IRS may impose include monetary penalties and incarceration.

Tax Return

A form taxpayers file to report income, deductions, credits, and taxes owed or paid.

Tax Filing Deadline

The date by which a tax return is generally due. The federal deadline for most individual returns is usually April 15, though it can shift (this can be caused by the deadline landing on a federal holiday or weekend).

Voluntary Compliance

The expectation that taxpayers will honestly report information and file required returns.

Tax Audit

An IRS review of a tax return to check whether the reported information is accurate. Returns may be selected for different reasons, including mismatched information or statistical selection.

Failure to File

Not submitting a required tax return by the deadline.

Failure to Pay

Not paying taxes owed by the deadline.

Tax Penalties

Financial charges that may apply for failing to follow tax rules. E.g. Not filing or paying on time. N.b. In some cases, serious tax violations can lead to criminal investigation.

Interest on Unpaid Taxes

An additional amount that may build up when taxes remain unpaid.

Ability-to-Pay Principle

The idea that people with more income or resources should contribute more in taxes than people with less.

Government Revenure

Money the government collects, including money from taxes.

Tax Fairness

The idea that tax rules should treat people fairly.

Tax Rate

The percentage or amount used to calculate a tax.

Marginal Tax Rate

The tax rate applied to the next portion of a person's taxable income.

What differs AGI from taxable income?

AGI is calculated before the standard or itemized deduction is subtracted.

Explain how a flat fee is not the same as a percentage tax.

A question about a dog-license may be using "proportional" to mean the same dollar charge for everyone. Strictly speaking, a fixed $10 fee is not a proportional INCOME tax, because it is not a percentage of income.

1099-DIV

A tax form reporting dividend payments earned by investors.

1099-INT

A tax form reporting interest income payments made to account holders or investors.

1098-T

A tax form provided by higher education institutions reporting tuition payments received or owed.

1099-Q

A tax form reporting disbursements/withdrawals made from a 529 education savings plan or ESA.

1098-E

A tax form that reports interest earned on student loans made during the past year.

Tax Minimization

A strategy that involves lowering taxable income as much as possible.

What is government funding mainly funded by?

Individual taxes.

Sales Tax Rate

A regressive tax rate applied to fast food that impacts lower incomes.

Income Tax

Progressive in nature due to increasing rates with higher income.

What may trigger an IRS audit?

Inconsistent data or statistical selection.