Income Tax Vocabulary

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Ability to Pay

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a criterion of tax fairness that people with different amounts of wealth or different amounts of income should pay 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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Adjusted Gross Income

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

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Benefits Received

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

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Business Taxes

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

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Credits

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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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Dependent

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

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Direct Tax

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

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Dividends

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ordinary dividends are corporation's distributions to its share holders from its earnings and profits.

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Earned Income

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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 Credit

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refundable credit for low income worders 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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Excise Taxes

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taxes on the sale of use of a specific product or transaction.

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Exempt (from withholding)

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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 Tax Liability)

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

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File a Return

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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 tax payer has entered information about income and tax liability.

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Filing Status

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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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Form W-4 (employee's withholding allowance Certificate)

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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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Formal Tax Legislation Process

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the strict consitiutional steps that a proposed tax must pass through before it becomes a law

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gross income

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

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horizontal equity

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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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Income taxes

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

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Indirect Tax

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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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Informal tax legislation process

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individuals and interest goups expressing and promoting their opinions about tax legislation

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Interest Income

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

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Payroll taxes

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taxes collected from employers and employees to finance specific programs; levied on earned income such as wages, salaries, and self-employment earnings

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personal income tax

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

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progressice 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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property taxes

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taxes on property especially real estate and also boats, automobiles, rv's and business inventories.

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proportional tax

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a tax that takes the same percentage of income from all income groups

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public goods and services

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a public good is one that cannot be withheld from those who dont pay for it, and one that may be consumed by one person without reducing the amount of the product availabel for others.

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Redevelopent or Enterprise Zone

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