Income Tax

Income Tax terms

1. ability to pay A concept of tax fairness that states that people with different amounts of wealth or different amounts of income should pay tax at different rates.
2. Adjusted gross income (AGI) (AGI) Your AGI is your gross, or total, income from taxable sources minus certain deductions.
3. amount due Money that taxpayers must pay to the government when the total tax is greater than their total tax payments
4. Appeal To call for a review of an IRS decision or proposed adjustment.
5. Authorized IRS e-file Provider A business authorized by the IRS to participate in the IRS e-file Program. The business may be a sole proprietorship, a partnership, a corporation, or an…
6. benefits received A concept of tax fairness that states that people should pay taxes in proportion to the benefits they receive from government goods and services.
7. bonus Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.
8. business A continuous and regular activity that has income or profit as its primary purpose.
9. Citizen or Resident Test Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for persons who are U.S.
10. Commission A portion of the policy premium that is paid to an insurance producer (agent) by the insurance company as compensation for the producer’s work.
11. compulsory payroll tax An automatic tax collected from employers and employees to finance specific programs.
12. deficit The result of the government taking in less money than it spends.
13. dependency exemption Amount that taxpayers can claim for a "qualifying child" or "qualifying relative". Each exemption reduces the income subject to tax.
14. Dependent A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption.
15. Direct Deposit A payment that is electronically deposited into an individual's account at a depository institution.
16. direct tax A tax that cannot be shifted to others, such as the federal income tax.
17. Earned Income Earned income is contrasted with investment income. It includes wages, salaries, honoraria, commission, professional fees, and other forms of compensation…
18. Earned Income Credit (EIC) (EIC) The earned income tax credit (EIC) reduces the income tax of that certain low-income taxpayers would otherwise owe.
19. electronic filing (e-file) The transmission of tax information directly to the IRS using telephones or computers.
20. electronic preparation Electronic preparation means that tax preparation software and computers are used to complete tax returns.
21. Electronic Return Originator (ERO) (ERO) The Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS.
22. employee Works for an employer. Employers can control when, where, and how the employee performs the work.
23. excise tax A tax on the sale or use of specific products or transactions.
24. exempt (from withholding) Free from withholding of federal income tax. A person must meet certain income, tax liability, and dependency criteria.
25. exemptions Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency.
26. federal income tax The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law…
27. Federal Insurance Contributions Act (FICA) Tax (FICA) Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as the Social Security tax.
28. Federal/State e-file A program sponsored by the IRS in partnership with participating states that allows taxpayers to file federal and state income tax returns electronically…
29. file a return To mail or otherwise transmit to an IRS service center the taxpayer's information, in specified format, about income and tax liability.
30. filing status Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married filing a separate return, head…
31. financial records Spending and income records and items to keep for tax purposes, including paycheck stubs, statements of interest or dividends earned, and records of…
32. Flat tax A flat tax, also known as a regressive tax, applies to everyone at the same rate, as a sales tax does.
33. Form W-4, Employee's Withholding Allowance Certificate Completed by the employee and used by the employer to determine the amount of income tax to withhold.
34. formal tax legislation process This is another term for a proportional tax.
35. foster child A foster child is any child placed with a taxpayer by an authorized placement agency or by court order.
36. gasoline excise tax An excise tax paid by consumers when they purchase gasoline. The tax covers the manufacture, sale, and use of gasoline.
37. Gross Income Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment compensation and certain scholarships.
38. Head of Household filing status You must meet the following requirements: 1. You are unmarried or considered unmarried on the last day of the year. 2.
39. horizontal equity The concept that people in the same income group should be taxed at the same rate. "Equals should be taxed equally."
40. income taxes Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends).
41. independent contractor Performs services for others. The recipients of the services do not control the means or methods the independent contractor uses to accomplish the work.
42. indirect tax A tax that can be shifted to others, such as business property taxes.
43. infant industry A new or developing domestic industry whose costs of production are higher than those of established firms in the same industry in other countries.
44. Inflation A condition of increasing prices. Inflation is generally measured by the Consumer Price Index.
45. informal tax legislation process Individuals and interest groups expressing and promoting their opinions about tax legislation.
46. Interest The term interest is used to describe the cost of using money, a right, share, or title in property.
47. interest income The income a person receives from certain bank accounts or from lending money to someone else.
48. Intermediate Service Provider (ISP) (ISP) Assists in processing tax return information between the ERO (or the taxpayer, in the case of online filing) and the Transmitter.
49. Internal Revenue Service (IRS) (IRS) The federal agency that collects income taxes in the United States.
50. Investment Income The equity dividends, bond interest, and/or cash interest paid on an investment.
51. IRS e-file Refers to the preparation and transmission of tax return information to the IRS using telephone lines or a computer with a modem or Internet access.
52. lobbyist A person who represents the concerns or special interests of a particular group or organization in meetings with lawmakers.
53. long-distance telephone tax refund Taxpayers are eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after Feb. 28, 2003.
54. luxury tax A tax paid on expensive goods and services considered by the government to be nonessential.
55. market economy An economic system based on private enterprise that rests upon three basic freedoms: freedom of the consumer to choose among competing products and…
56. Married Filing Joint filing status You are married and both you and your spouse agree to file a joint return. (On a joint return, you report your combined income and deduct your combined…
57. Married Filing Separate filing status You must be married. This method may benefit you if you want to be responsible only for your own tax or if this method results in less tax than a joint…
58. mass tax A broad tax that affects a majority of taxpayers.
59. Medicare tax Used to provide medical benefits for certain individuals when they reach age 65.
60. nonrefundable credit When the amount of a credit is greater than the tax owed, taxpayers can only reduce their tax to zero; they cannot receive a "refund" for any excess…
61. nullification A state's refusal to recognize or obey a federal law.
62. payroll taxes Include Social Security and Medicare taxes.
63. personal exemption Can be claimed for the taxpayer and spouse. Each personal exemption reduces the income subject to tax by the exemption amount.
64. Personal Identification Number (PIN) (PIN) Generally a four-character number or word, the PIN is the secret code given to credit or debit cardholders enabling them to access their accounts.
65. Progressive tax In a progressive, or graduated, income tax system, taxpayers with higher incomes are taxed at higher rates that those with lower incomes.
66. property taxes Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business…
67. proportional tax A tax that takes the same percentage of income from all income groups.
68. protective tariff A tax levied on imported goods with the purpose of reducing domestic consumption of foreign-produced goods.
69. public goods and services Benefits that cannot be withheld from those who don't pay for them, and benefits that may be "consumed" by one person without reducing the amount of the…
70. qualifying child To be a qualifying child, the dependent must meet eight tests: (1) relationship, (2) age, (3) residence, (4) support, (5) citizenship or residency, (6)…
71. qualifying relative There are tests that must be met to be a qualifying relative, they are: (1) not a qualifying child, (2) member of household or relationship, (3)…
72. Qualifying Widow(er) filing status If your spouse died in 2010, you can use married filing jointly as your filing status for 2010 if you otherwise qualify to use that status.
73. Refund An amount paid back because of an overpayment or because of the return of an item previously sold.
74. refundable credit When the amount of a credit is greater than the tax owed, taxpayers can receive a "refund" for some of the unused credit.
75. Regressive tax A regressive or flat income tax system taxes everyone at the same rate, as sales tax does.
76. resources Factors needed to produce goods and services (natural, human, and capital goods).
77. Revenue Revenue is the money you collect for providing a product or service. Revenue is different from earnings, which is what's left of your revenue after…
78. revenue tariff A tax on imported goods levied primarily to generate revenue for the federal government.
79. salary Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked, such as weekly or monthly.
80. Sales tax A sales tax is a tax imposed by state and local governments on transactions that occur within their jurisdictions.
81. self-employment loss Self-employment income minus self-employment expenses, when self-employment income is less than self-employment expenses.
82. self-employment profit Self-employment income minus self-employment expenses, when self-employment income is greater than self-employment expenses.
83. self-employment tax Similar to Social Security and Medicare taxes. The self-employment tax rate is 15.3 percent of self-employment profit.
84. sin tax A tax on goods such as tobacco and alcohol.
85. single filing status If on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree and you do not…
86. Social Security Tax Provides benefits for retired workers and their dependents as well as for the disabled and their dependents.
87. Software Developer Develops software for the purposes of (1) formatting electronic tax return information according to IRS specifications, and/or (2) transmitting electronic…
88. standard deduction Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency.
89. support For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and transportation.
90. tariff A tax on products imported from foreign countries.
91. tax avoidance An action taken to lessen tax liability and maximize after-tax income.
92. tax code The official body of tax laws and regulations.
93. Tax Credit A tax credit is an amount you can subtract from the tax you would otherwise owe.
94. tax cut A reduction in the amount of taxes taken by the government.
95. tax deduction An amount (often a personal or business expense) that reduces income subject to tax.
96. tax evasion A failure to pay or a deliberate underpayment of taxes.
97. tax exemption A part of a person's income on which no tax is imposed.
98. tax liability (or total tax bill) The amount of tax that must be paid. Taxpayers meet (or pay) their federal income tax liability through withholding, estimated tax payments, and payments…
99. tax preparation software Computer software designed to complete tax returns. The tax preparation software works with the IRS electronic filing system.
100. tax shift The process that occurs when a tax that has been levied on one person or group is in fact paid by others.