Income Tax Vocab

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A criterion of tax fairness that people with different amounts of wealth or different amounts of taxes. Wealth may include assets and property such as houses, cars, stocks, bonds, savings accounts, or valuables. Income includes wages, rents, interest, profits, or other payments.

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Ability to Pay

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Total income reduced by certain adjustments such as the IRA deduction and the deduction for alimony paid.

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Adjusted Gross Income

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A criterion of tax fairness that people should pay taxes in rough proportion to the benefits they receive from government goods and services.

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Benefits Received

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Taxes levied on businesses by federal, state, or local governments. These may include, in addition to corporate income taxes on earnings and profits, unemployment insurance, workmen's compensation, contributions to social secutiry, and Medicare insurance

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Business Taxes

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A direct reduction of the tax owed. Credits may be allowed for purposes such as child care and the earned income credit for low-income taxpayers.

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Credits

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A person who relies on someone else for support. A dependent generally may not be the taxpayer or his or her spouse. A taxpayer may claim an exemption for a dependent if the dependency tests are met.

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Dependent

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A tax that cannot be shifted to others. The federal income tax is a good example of a direct tax.

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Direct Tax.

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Ordinary dividends are a corporation's distributions to its shareholders from its earnings and profits.

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Dividends

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Includes wages, salaries, tips, and net earnings from self-employment and other income received for personal services.

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Earned Income

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A refundable credit for low-income workers with children. This credit may be paid to the worker even if no income tax was withheld from the worker's pay. To receive the earned income credit, a taxpayer must file a tax return.

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Earned Income Credit

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Taxes on the sale of use of specific products or transactions.

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Excise Taxes

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Free from federal income tax withholding requirements by meeting certain income, tax liability, and dependency criteria.

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Exempt (from Withholding)

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Tax law provides for a set amount which taxpayers can claim for themselves, their spouses, and eligible dependents. The total of these amounts is subtracted from adjusted gross income before any tax is computed on the remaining income.

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Exempt (from Tax Liability)

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To file means to mail or otherwise convey to a regional IRS Service Center the appropriate IRS form(s)--the return--on which a taxpayer has entered information about income and tax liability.

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File a Return

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Based on taxpayer's marital status and other factors, the filing status determines the tax bracket and rate at which income is taxed.

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Filing Status

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A form that helps an employer determine how much to withhold from an employee's paycheck for federal income tax purposes.

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For W-4 (Employee's Withholding Allowance Certificate)

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The strict constitutional steps (involving Congress and the president) that a propsed tax must pass through before it becomes a law.

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Formal Tax Legislation Process

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Money, goods, and property you received that must be included in taxable income.

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Gross Income

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The concept that people in the same income group should pay the same amount of taxes. "Equals should be taxed equally."

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Horizontal Equity

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Taxes on income, both earned and unearned. Income taxes can be levied both on individuals and business.

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Income Taxes

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A tax that can be shifted to others. The one who pays the tax to the government may be able to shift it to others. Business property taxes are examples of indirect taxes.

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Indirect Tax

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Individuals and interest groups expressing and promoting their opinions about tax legislation.

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Informal Tax Legislation Process

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Income received from savings accounts or from lending money to someone else.

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Interest Income

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Taxes collected from employers and employees top finance specific programs; levied on earned income such as wages, salaries, and selfemployment earnings.

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Payroll Taxes

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A tax based on the amount of taxable income that people receive annually. Taxable income is less than total income becuase of exemptions and tax deductions.

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Personal Income Tax

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A tax that takes a larger percentage of income from high-income groups than from low-income groups.

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Progressive Tax

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Taxes on property, especially real estate, and also boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

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Property Tax

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A tax that takes the same percentage of income from all income groups.

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Proportional Tax

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A public good is one that cannot be withheld from those who don't pay for it, and one that may be "consumed" by one person without reducing the amount of the product available for others. Examples include national defense, street lights, and roads and highways. Public services include welfare programs, law enforcement, monitoring and regulating of trade and the economy, and education.

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Public Goods and Services

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A government-designed area that is declared in need of restoration and revitalization. To encourage restoration, tax reductions may be available.

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Redevelopment of Enterprise Zone

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A tax that takes a larger percentage of income from low-income groups than form high-income groups.

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Regressive Tax

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Taxes on retail products, based on a set percentage of retail cost.

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Sales Taxes

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A form on which taxpayers list specific sources of income, or specific expenses for which they claim deductions or credits.

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Schedule

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An amount fixed by law and based on filing status and age, which taxpayers may deduct from their adjusted gross income before tax is determined.

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Standard Deduction

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Taxes on products imported from foreign countries.

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Tariff (Duties; Customs Duties or Import Duties)

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Amounts based on certain expenditures that a taxpayer can deduct from taxes owed.

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Tax Credits

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A person's or a business's expenses that can be deducted in determining taxable imcome.

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Tax Deductions

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A part of a person's total income on which no tax is imposed.

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Tax Exemptions

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The amount of tax that must be paid. Taxpayers meet their federal income tax liability through withholding, estimated tax payments, and payments attached to the tax forms they file with the government.

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Tax Liability

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The process that occurs when a tax that has been levied on one person or grou pis in fact paid by others.

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Tax Shift

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Money that an employer takes from an employee's paycheck and taht is used to pay part or all of the employee's taxes.

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Tax Withholding

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The income on which tax is computed.

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Taxable Income

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Required payments of money to governments that are used to provide public goods and services for the benefit of the community as a whole.

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Taxes

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Taxes on economic transactions, such as the sale of goods and services. Such taxes can be based on a set percentage of the sales value or they can be a set amount on physical quantities.

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Transaction Taxes

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The concept that people in differenct income groups should pay different amounts of taxes, or different percentages of the incomes as taxes. "unequals should be taxed unequally."

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Vertical Equity

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A system of compliance that relies on individual citizens to report their income freely and voluntarily, calculate their tax liability correctly, and file a tax return on time.

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Voluntary Compliance

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Money that employers withhold from employee's paychecks. This money is deposited for the government. It will be credited against the employee's tax liability when they file their returns. Employers withhold money for federal income taxes, federal social security taxes, and state and local income taxes in some states and localities.

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Withholding

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Claimed by an employee on Form W-4. An employer uses the number of allowances claimed together with income earned and marital status to determine how much income tax to withhold form wages.

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Withholding Allowance