Income Tax Glossary
Income Tax Glossary
Use this glossary of common income tax service terms and their definitions to help you understand your tax situation
| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
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A
Ability to pay - A concept of tax fairness that states that people with different amounts of wealth or different amounts of income should pay...
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Adjusted gross income - Gross income reduced by certain amounts, such as a deductible IRA contribution or student loan interest.
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Amount due - Money that taxpayers must pay to the government when the total tax is greater than their total tax payments.
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Appeal - To call for a review of an IRS decision or proposed adjustment.
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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...
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B
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Benefits received - A concept of tax fairness that states that people should pay taxes in proportion to the benefits they receive from government...
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Bonus - Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.
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Business - A continuous and regular activity that has income or profit as its primary purpose.
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C
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Citizen or Resident Test - Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for...
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Commission - Compensation received by an employee for services performed. Commissions are paid based on a percentage of sales made or a...
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Compulsory payroll tax - An automatic tax collected from employers and employees to finance specific programs.
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D
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Deficit - The result of the government taking in less money than it spends.
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Dependency exemption - Amount that taxpayers can claim for a "qualifying child" or "qualifying relative". Each exemption reduces the income subject to...
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Dependent - A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency...
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Direct Deposit - This allows tax refunds to be deposited directly to the taxpayer's bank account. Direct Deposit is a fast, simple, safe, secure...
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Direct tax - A tax that cannot be shifted to others, such as the federal income tax.
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E
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Earned income - Includes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings.
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Earned Income Credit - A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit.
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Electronic filing (e-file) - The transmission of tax information directly to the IRS using telephones or computers. Electronic filing options include (1)...
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Electronic preparation - Electronic preparation means that tax preparation software and computers are used to complete tax returns. Electronic tax...
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Electronic Return Originator (ERO) - The Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS. EROs may...
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Employee - Works for an employer. Employers can control when, where, and how the employee performs the work.
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Excise tax - A tax on the sale or use of specific products or transactions.
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Exempt (from withholding) - Free from withholding of federal income tax. A person must meet certain income, tax liability, and dependency criteria. This...
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Exemptions - Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-...
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F
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Federal/State e-file - A program sponsored by the IRS in partnership with participating states that allows taxpayers to file federal and state income...
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Federal income tax - The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense,...
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Federal Insurance Contributions Act (FICA) Tax - Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as...
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File a return - To mail or otherwise transmit to an IRS service center the taxpayer's information, in specified format, about income and tax...
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Filing status - Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married...
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Financial records - Spending and income records and items to keep for tax purposes, including paycheck stubs, statements of interest or dividends...
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Flat tax - This is another term for a proportional tax.
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Formal tax legislation process - This is another term for a proportional tax.
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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.
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Foster child - A foster child is any child placed with a taxpayer by an authorized placement agency or by court order. Eligible foster...
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G
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Gasoline excise tax - An excise tax paid by consumers when they purchase gasoline. The tax covers the manufacture, sale, and use of gasoline.
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Gross income - Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment...
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H
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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. You paid...
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Horizontal equity - The concept that people in the same income group should be taxed at the same rate. "Equals should be taxed equally."
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I
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Income taxes - Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be...
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Independent contractor - Performs services for others. The recipients of the services do not control the means or methods the independent contractor...
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Indirect tax - A tax that can be shifted to others, such as business property taxes.
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Infant industry - A new or developing domestic industry whose costs of production are higher than those of established firms in the same industry...
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Inflation - The simultaneous increase of consumer prices and decrease in the value of money and credit.
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Informal tax legislation process - Individuals and interest groups expressing and promoting their opinions about tax legislation.
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Interest - The charge for the use of borrowed money.
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Interest income - The income a person receives from certain bank accounts or from lending money to someone else.
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Intermediate Service Provider - Assists in processing tax return information between the ERO (or the taxpayer, in the case of online filing) and the...
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Internal Revenue Service (IRS) - The federal agency that collects income taxes in the United States.
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Investment income - Includes taxable and tax-exempt interest, dividends, capital gains net income, certain rent and royalty income, and net passive...
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IRS e-file - Refers to the preparation and transmission of tax return information to the IRS using telephone lines or a computer with a...
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L
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Lobbyist - A person who represents the concerns or special interests of a particular group or organization in meetings with lawmakers....
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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....
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Luxury tax - A tax paid on expensive goods and services considered by the government to be nonessential.
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M
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Market economy - An economic system based on private enterprise that rests upon three basic freedoms: freedom of the consumer to choose among...
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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...
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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...
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Mass tax - A broad tax that affects a majority of taxpayers.
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Medicare tax - Used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of...
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N
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Nullification - A state's refusal to recognize or obey a federal law.
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P
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Payroll taxes - Include Social Security and Medicare taxes.
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Personal exemption - Can be claimed for the taxpayer and spouse. Each personal exemption reduces the income subject to tax by the exemption amount.
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Personal Identification Number (PIN) - Allow taxpayers to "sign" their tax returns electronically. The PIN, a five-digit self-selected number, ensures that...
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Progressive tax - A tax that takes a larger percentage of income from high-income groups than from low-income groups.
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Property taxes - Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees),...
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Proportional tax - A tax that takes the same percentage of income from all income groups.
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Protective tariff - A tax levied on imported goods with the purpose of reducing domestic consumption of foreign-produced goods.
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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...
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Q
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Qualifying child - To be a qualifying child, the dependent must meet eight tests: (1) relationship, (2) age, (3) residence, (4) support, (5)...
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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...
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Qualifying Widow(er) filing status - If your spouse died in 2009, you can use married filing jointly as your filing status for 2009 if you otherwise qualify to use...
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R
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Refund - Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.
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Regressive tax - A tax that takes a larger percentage of income from low-income groups than from high-income groups.
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Resources - Factors needed to produce goods and services (natural, human, and capital goods).
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Revenue - The income the nation collects from taxes.
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Revenue tariff - A tax on imported goods levied primarily to generate revenue for the federal government.
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S
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Salary - Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked...
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Sales tax - A tax on retail products based on a set percentage of retail cost.
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Self-employment loss - Self-employment income minus self-employment expenses, when self-employment income is less than self-employment expenses.
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Self-employment profit - Self-employment income minus self-employment expenses, when self-employment income is greater than self-employment expenses.
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Self-employment tax - Similar to Social Security and Medicare taxes. The self-employment tax rate is 15.3 percent of self-employment profit. The self...
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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...
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Sin tax - A tax on goods such as tobacco and alcohol.
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Social Security tax - Provides benefits for retired workers and their dependents as well as for the disabled and their dependents. Also known as the...
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Software Developer - Develops software for the purposes of (1) formatting electronic tax return information according to IRS specifications, and/or...
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Standard deduction - Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency.
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Support - For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and...
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T
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Tariff - A tax on products imported from foreign countries.
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Taxable interest income - Interest income that is subject to income tax. All interest income is taxable unless specifically excluded.
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Tax avoidance - An action taken to lessen tax liability and maximize after-tax income.
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Tax code - The official body of tax laws and regulations.
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Tax credit - A dollar-for-dollar reduction in the tax. Can be deducted directly from taxes owed.
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Tax cut - A reduction in the amount of taxes taken by the government.
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Tax deduction - An amount (often a personal or business expense) that reduces income subject to tax.
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Taxes - Required payments of money to governments that are used to provide public goods and services for the benefit of the community...
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Tax evasion - A failure to pay or a deliberate underpayment of taxes.
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Tax-exempt interest income - Interest income that is not subject to income tax. Tax-exempt interest income is earned from bonds issued by states, cities, or...
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Tax exemption - A part of a person's income on which no tax is imposed.
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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...
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Tax preparation software - Computer software designed to complete tax returns. The tax preparation software works with the IRS electronic filing system.
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Tax shift - The process that occurs when a tax that has been levied on one person or group is in fact paid by others.
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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....
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Tip income - Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the...
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Transaction taxes - Taxes on economic transactions, such as the sale of goods and services. These can be based on a set of percentages of the sales...
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Transmit - To send a tax return to the IRS electronically. Tax returns prepared on paper can be sent through the mail.
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Transmitter - Sends the electronic return data directly to the IRS.
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U
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Underground economy - Money-making activities that people don't report to the government, including both illegal and legal activities.
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User fees - An excise tax, often in the form of a license or supplemental charge, levied to fund a public service.
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User tax - A tax that is paid directly by the consumer of a good, product, or service.
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V
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Vertical equity - The concept that people in different income groups should pay different rates of taxes or different percentages of their...
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Voluntary compliance - A system of compliance that relies on individual citizens to report their income freely and voluntarily, calculate their tax...
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Volunteer Income Tax Assistance (VITA) - This provides free income tax return preparation for certain taxpayers. The VITA program assists taxpayers who have limited or...
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W
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Wages - Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the...
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Withholding ("pay-as-you-earn" taxation) - Money, for example, that employers withhold from employees paychecks. This money is deposited for the government. (It will be...
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