Tax Terms

Front 1

Ability To Pay

Back 1

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.

Front 2

Adjusted Gross Income

Back 2

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

Front 3

Benefits Recieved

Back 3

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

Front 4

Business Taxes

Back 4

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 security, and Medicare insurance.

Front 5

Credits

Back 5

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.

Front 6

Dependent

Back 6

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

Front 7

Direct Tax

Back 7

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

Front 8

Dividends

Back 8

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

Front 9

Earned Income

Back 9

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

Front 10

Earned Income Credit

Back 10

A refundable credit for low-income workers with children. To recieve the earned income credit, a taxpayer must fil a tax return.

Front 11

Excise Taxes

Back 11

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

Front 12

Exempt(from withholding)

Back 12

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

Front 13

Exempt (from Tax Liability)

Back 13

Tax law provides for a set amount in 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.

Front 14

File a Return

Back 14

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 info. about income and tax liability.

Front 15

Filing Status

Back 15

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

Front 16

Form W-4

Back 16

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

Front 17

Formail Tax Legislation Process

Back 17

The strict constitutional steps that a proposed tax must pass through before it becomes law.

Front 18

Gross Income

Back 18

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

Front 19

Horizontal Equity

Back 19

The concept that people in the same income group should pay in same amount of taxes.

Front 20

Income Taxes

Back 20

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

Front 21

Indirect Tax

Back 21

A tax that can be shifted to others. The one who pays the tax to the govt. may be able to shift it to others.

Front 22

Informal Tax Legislation Process

Back 22

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

Front 23

Interest Income

Back 23

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

Front 24

Payroll Taxes

Back 24

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

Front 25

Personal Income Tax

Back 25

A tax based on the amount of taxable income that people recieve annually.

Front 26

Progressive Tax

Back 26

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

Front 27

Property Taxes

Back 27

Taxes on property, especially real estate, and also boats, automobiles, recreational vehicles, and business inventories.

Front 28

Proportional Tax

Back 28

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

Front 29

Public Goods and Services

Back 29

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.

Front 30

Redevelopment or Enterprise Zone

Back 30

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

Front 31

Regressive Tax

Back 31

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

Front 32

Sales Taxes

Back 32

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

Front 33

Schedule

Back 33

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

Front 34

Standard Deduction

Back 34

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.

Front 35

Tariff

Back 35

Taxes on products imported from foreign countries

Front 36

Tax Credits

Back 36

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

Front 37

Tax Deductions

Back 37

A person'sor a business's expenses that can be deducted in determining taxable income.

Front 38

Tax Exemptions

Back 38

A part of a person's total income on which not tax is imposed.

Front 39

Tax Liability

Back 39

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

Front 40

Tax Shift

Back 40

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

Front 41

Tax Withholding

Back 41

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

Front 42

Taxable Income

Back 42

The income on which tax is computed.

Front 43

Taxes

Back 43

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

Front 44

Transaction Taxes

Back 44

Taxes on economic transactions, such as the sale goods and services.

Front 45

Vertical Equity

Back 45

The concept that people in different income groups should pay different amounts of taxes, or different percentages of the incomes as taxes.

Front 46

Voluntary Compliance

Back 46

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.

Front 47

Withholding

Back 47

Money that employers withhold from employee's paycheck. This money is deposited for the govt. It will be credited against the employees' 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.

Front 48

Withholding Allowance

Back 48

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 from wages.