Taxation Concepts

A set of vocabulary flashcards covering key taxation concepts and terms for exam preparation.

Progressive Tax

A tax system that uses tax brackets to collect a larger percentage from high-income earners than from low-income earners.

Mandatory Spending

Spending by the federal government required by previously existing laws.

Marginal Tax Rate

The tax bracket that your highest dollar of income falls into, representing the highest tax rate paid.

Medicaid

A government-run insurance program that provides healthcare assistance to low income Americans.

Medicare

A government-run insurance program that assists the elderly and disabled with healthcare.

Paycheck Stub

A document attached to every paycheck detailing earnings and amounts withheld for taxes and other deductions.

Payroll Tax

Federal and state taxes that employers must pay based on a percentage of employee's salary towards social services.

Tax Return

An annual report to the IRS summarizing total income, deductions, and taxes withheld by employers.

Taxable Income

The amount of income used to calculate an individual's or company's income tax due.

Tax Refund

An amount returned to a taxpayer who has paid more taxes than were due.

Unearned Income

Income received from sources other than employment.

Social Security

A federal program providing monthly benefits to retirees, military families, surviving families of deceased workers, and disabled individuals.

Standard Deduction

A standardized dollar amount that reduces taxable income for individuals not itemizing deductions.

Tax Bracket

A range of income amounts taxed at a particular rate.

Tax Credit

An amount subtracted directly from the tax owed.

Tax Deduction

An amount that can be subtracted from a person's tax liability, lowering their taxable income.

Tax Rate

The percentage at which taxes are paid on each dollar of income.

W-2

A form sent to an employee and the IRS reporting annual wages and taxes withheld.

W-4

A form completed by an employee indicating their tax situation for withholding purposes.

Withholding

The portion of an employee's wages not included in their paycheck because it goes to taxes.

1040

The standard IRS form individuals can use to file annual income tax returns.

1099

A form detailing all non-employee compensation.

Dividend

Money from company profits paid out to shareholders, typically quarterly.

Effective Tax Rate

The actual rate paid on taxes, as a percentage of overall income.

Earned Income

Income generated by working, such as wages or salary.

Excise Tax

A tax paid on purchases of specific goods, like gasoline or cigarettes.

Allowances

Exemptions claimed by employees on the W-4 to determine tax withholding from paychecks.

Audit

An inspection of a filer's tax return by the IRS.

Capital Gain

Profit from the sale of an asset calculated by subtracting the purchase price from the selling price.

Corporate Income Tax

A percentage of profits paid by a business to the federal and state government.

Dependent

Someone financially supported who can be claimed on a tax return to reduce taxable income.

Discretionary Spending

Spending by the federal government determined by legislative action and approved through votes.

Federal Insurance Contributions Act (FICA)

A federal law requiring employers to withhold taxes from employee wages for Social Security and Medicare.

Exemption

A set amount of money per dependent that can be subtracted from taxable income.

Filing Status

A category defining the type of tax return an individual will use, based on marital status.

I-9

Form used by employers to verify an employee's identity and eligibility for employment.

Income Tax

Taxes paid by employees to federal and state government through a direct deduction from their paycheck.

Interest Income

Income earned through interest on savings accounts, bonds, CDs, etc.