Tax Vocabulary and Definitions
Section 4.2: Fundamentals of Taxation and Tax Types
Taxes: Mandatory payments made by individuals and businesses to governments.
Federal Unemployment Tax Act (FUTA): A federal program that provides temporary financial assistance to unemployed workers who lose their jobs through no fault of their own.
Income Tax: A tax imposed on the income generated by an individual or business. Income tax is further divided into federal, state, and local income tax.
Medicare Tax: A tax that funds health insurance for citizens 65 years of age and older, and for younger people receiving disability benefits through Social Security.
Progressive Tax System: A tax system where the tax rate increases as the taxpayer's income increases.
Property Tax: A tax imposed on real estate or other forms of property, calculated based on the value of the property.
Sales Tax: A consumption tax paid by the end consumer of goods and services, and collected and remitted by the seller to the appropriate government agency.
Social Security Tax: A tax that funds financial assistance for retirement, disability, and survivors.
State Unemployment Tax Act (SUTA): A state program that provides temporary financial assistance to unemployed workers who lose their jobs through no fault of their own.
Tax Liability: The amount of money that is owed by a person or organization to a taxing authority, like the federal, state, and local governments.
Section 4.4: Tax Filing, Income Concepts, and Tax Forms
Adjusted Gross Income (AGI): A taxpayer’s total income for the year minus specific eligible deductions.
Dependent: A person who relies on the taxpayer for financial support and for whom the taxpayer can claim a dependency exemption on their tax return.
Filing Status: A category that defines a taxpayer's marital and family situation, affecting tax rates, standard deductions, and eligibility for certain tax benefits.
Form 1040: The standard U.S. Individual Income Tax Return form used by individuals to file their annual income tax returns with the Internal Revenue Service (IRS).
Form 1099-DIV: A tax form used to report dividends and other distributions from investments.
Form 1099-INT: A tax form used to report interest income received from various sources, such as banks.
Form 1099-NEC: A tax form used to report payments made to non-employees for services performed for a business.
Form 1099-R: A tax form used to report distributions from pensions, IRAs, or other retirement accounts.
Form W-2: A tax form an employer prepares to report an employee’s annual compensation and tax-related withholding amounts, also called a Wage and Tax Statement.
Income: Any money an individual or business earns or receives as the result of economic activity.
Itemized Deductions: Specific expenses that taxpayers can claim to reduce their taxable income.
Schedule K-1: A tax form used to report a partner’s share of partnership income and distributions.
Standard Deduction: A fixed dollar amount that reduces a taxpayer’s taxable income.
Tax Credit: A direct reduction in the amount of taxes owed by a taxpayer.
Tax Day: The official deadline for individuals and businesses to file their federal tax returns for the previous year.
Tax Deduction: An expense that a taxpayer is allowed to subtract from their total income to reduce the amount of income that is subject to taxation.
Tax Refund: The amount of money returned to a taxpayer by the government when the taxpayer has paid more in annual taxes than they owed.
Tax Return: A form or set of forms filed with the government to report (personal or business) income, the taxes already paid during the prior year, and the taxes still owed.
Taxable Income: The portion of income that is subject to income tax.
Withholding: The process by which an employer deducts a portion of an employee's wages or salary for taxes, retirement plans, health insurance premiums, and other employee benefits, before the remainder is paid to the employee.