Tax Simulation

1040

A tax form that determines the amount of income tax owed in a single year.

1099-B

A tax form that reports gains or losses while selling stocks.

1099-DIV

A tax form that reports qualifying dividend payments to investors.

529 Plan

A savings plan that allows you to save for higher education and training without paying taxes.

Adjusted Gross Income (AGI)

Your gross income minus specific deductions. Your AGI is used to calculate how much of your income can be taxed.

American Opportunity Tax Credit

A tax break for educational expenses for qualifying students enrolled in a degree program in the first four years after high school.

Benefits

A form of compensation that is in addition to a salary or wage. They can include social security and unemployment payments, different insurance options, company perks, and employee rewards.

Child and Other Dependent Tax Credit

A tax break that is given for each qualifying child.

Compensation

An amount of money that is awarded to a person to pay for loss, injury or suffering.

Credit

Items that reduce the actual amount of taxes you need to pay.

Cryptocurrency

A digital asset, or valuable item, that can be used like money to make purchases or hold

onto like an investment.

Deduction

In tax terms, any purchase or expense that reduces the overall amount of money that you

earn. Deductions are subtracted from gross income when the taxpayer calculates his or her

income taxes.

Dependent

A person that is supported by another person financially.

Disability Insurance

A type of insurance that helps cover lost income when an illness or injury keeps an

employee from working.

Earned Income Credit

A tax break for low- to moderate-income workers and families.

Education Savings Account (ESA)

A savings plan that can be used to pay for educational expenses in elementary, secondary

and higher education without paying taxes.

Estimated tax payments

The amount of money that self-employed workers (like in the gig economy) must pay four

times throughout the year.

Federal Income Tax

The federal government charges a tax on the money people earn while working.

FICA

The Federal Insurance Contributions Act and is deducted from the

employee's paycheck. It includes Social Security and Medicare Tax, which provides benefits

for people who are retired, disabled, and have children.

Filing Status

A category the IRS uses to determine how much a person's income is taxed. There are five

filing statuses: single, married filing jointly, married filing separately, head of household and

qualifying widow(er) with dependent child

Gig Economy

This includes a system with a group of jobs that are contract or independent work.

Gross Pay

This is the total amount of money earned before taxes and deductions are taken out of an

employee's paycheck.

Head of Household

A filing status for a person who pays more than half the cost of housing and supporting

another person.

Health Insurance

A type of insurance that covers the cost of medical expenses.

Income

Any form of money, property, or services that you earn or receive.

Income Tax

This is money that is withheld from an employee's paycheck and used for federal, state, and

local needs. The amount withheld varies based on income and local laws.

Insurance

A means of protection from financial loss.

Interest

Interest is the fee someone pays to be able to borrow money. You either pay interest on

money you borrow (like when you take out a loan to buy a car) or make interest on the money

you save (like when a bank pays you interest on money you put into a savings account).

IRS

A U.S. government agency that is responsible for collecting

taxes and enforcing tax laws.

Itemized deductions

Eligible expenses that individuals claim on tax returns to decrease the amount of their

income that can be taxed.

Life Insurance

A type of insurance that pays a guaranteed amount of money if the employee passes away.

The employee can decide who the money goes to in their policy.

Lifetime Learning Credit

A tax break for educational expenses for qualifying students for any class after high school.

Married filing separately

A filing status in which a married couple files two tax returns. Each spouse files a return

using their own income and deductions.

Married filing jointly

A filing status in which a married couple combines their incomes and files one tax return.

Medicare

A tax that pays for health care for people over 65 or people with disabilities.

Net Pay

This is the total amount of money earned after taxes and deductions are taken out of an

employee's paycheck.

Salary

A set amount of money earned per pay period. It is usually described as the amount of

money made per year.

Social Security

A tax that pays benefits for people who have retired, disabled people, and dependents of

workers who have died.

Social security check

A payment made by the federal government to taxpayers who have retired or are disabled.

Standard deduction

An amount of money that the IRS sets each year that can be subtracted from your income

before calculating the taxes you owe.

State Income Tax

Most states charge income tax on the money you earn while working. This is separate from,

and additional to federal tax.

Stocks

These are shares of ownership in a company. If the company grows in value, then the value

of stock grows in value as well.

Tax Preparation Software

An online program that helps an individual complete tax forms that can then be filed with

the IRS (ex. Turbo Tax and H&R Block).

W-2 Form

This is a tax form employers are required to send their employees each year. This form

reports the total annual salary or wages and the amount of taxes withheld from their

paychecks.

W-4 Form

This is a tax form employees use to tell their employer how much federal income tax to

withhold from their paycheck.

Wages

A set amount of money an individual earns for work completed.

Widow(er)

A person whose spouse has died.

1095-C Form

A statement of health coverage offered by the employer to eligible employees.