Income Tax and Deductions

These flashcards cover key terms and definitions related to income taxes and deductions.

Income tax

A percentage of income collected by the government to fund its services and programs.

Gross income

Total income for the year.

Adjusted gross income

Take gross income and subtract certain allowable amounts, called adjustments.

Adjustments

Untaxed portions of gross income that include contributions to certain retirement accounts and tax-deferred savings plans, interest paid on student loans, and self-employment costs.

Standard deduction

A lump-sum amount that you can subtract from your adjusted gross income.

Itemized deductions

Deductions listed separately if you have incurred a large number of deductible expenses.

Taxable income

Subtract deductions from adjusted gross income.

Tax credits

Sums of money that reduce the income tax owed by the full dollar-for-dollar amount of the credits.

Filing status

Tax rates and standard deductions are one of four of these.

Marginal tax rates

Various income ranges, called margins.

Federal Insurance Contributions Act (FICA)

Federal government taxes that are used for Social Security and Medicare benefits.

Social Security

Provides payments to eligible retirees, people with health problems, eligible dependents of deceased persons, and disabled citizens.

Medicare

Provides health care coverage mostly to Americans 65 and older.

Base pay

Your salary prior to any withheld taxes for the pay period the pay stub covers.

Net pay

The actual amount of your check or deposit after taxes have been withheld.