Tax Definitions

Flat tax

Taxpayers pay the same percentage of their income.

Progressive tax

Tax increases when percentage of income increases.

Sales Tax

A consumption tax imposed by government on the sale of goods or services.

Income Tax

Tax levied by the government based on income.

Social Security

A federal insurance program where the government provides benefits to retired citizens.

Medicare

A government medical insurance program for elderly citizens.

Medicaid

A government medical insurance program for families whose income is insufficient to cover medical expenses.

W-2

A report of how much income, taxes, and benefits were provided by an employer over a year.

W-4

A form that employees can fill out to determine how much federal income tax should be withheld from their paycheck.

1040 EZ

A form aimed to simplify the tax return process.

1098

A mortgage interest statement that a lender uses to report money paid on a home mortgage loan.

Child Tax Credit

A tax break for families with qualifying children under 17.

Adjusted Gross Income

Gross income minus adjustments to income.

Charitable Donations

A gift of cash or property made to a nonprofit organization or religious organizations.

Itemized Deductions

Expense subtracted from gross income to deduct the amount of taxes that are owed.

Tax Credit

A provision that reduces a taxpayer’s final tax bill.

Withholding

A deduction from an employer’s paycheck that is sent directly to the government.

Filing Status

Determines the rate at which income is taxed.

Horizontal Equity

All members with similar income and assets should be taxed similarly.

Vertical Equity

Tax obligations vary in proportion to income.