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Income and Taxes

QuestionAnswer
An allowance an individual claims on a W-4 Form. Allowance
A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary. Accumulated Earnings
A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security. Commissions
Any item or expenditure subtracted from gross income to reduce the amount of income subject to tax. Deduction
Benefits provided by an employer to an employee for use in caring for dependents such as newborns or disabled persons. Dependent care benefits are part of the overall employee benefits plan and can be found in box 10 of the employee's W-2 form. Dependent
Electronic funds that are deposited directly into your bank account rather than through a paper check. Common uses of a direct deposit include income tax refunds and pay checks. Direct Deposit
Income derived from active participation in a trade or business, including wages, salary, tips, commissions and bonuses. This is the opposite of unearned income. Earned Income
A retirement plan that an employer or self-employed individuals can establish. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee's SEP IRA on a discretionary basis Employee
A type of benefit plan that an employer offers for the benefit of his/her employees at no or a relatively low cost to the employees. If employees participate in the plan, they will benefit from its low-cost method of obtaining discounted services. Employer
The dollar amount that each individual taxpayer is able to deduct for him or herself or a dependent each year. A separate personal exemption is accorded to every man, woman and child in the U.S. that must file a return. For example the amount of the perso Exemptions
A tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities. Federal income taxes are applied on all forms of earnings that make up a taxpayer's taxable income, such Federal Income Tax
A U.S. law requiring a deduction from paychecks and income that goes toward the Social Security program and Medicare. Both employees and employers are responsible for sharing the FICA payments. FICA
An individual's total personal income before taking taxes or deductions into account. Gross Income
Economic wealth that is generated in exchange for an individual's performance of agreed upon activities or through investing capital. Income
An employee's earnings that are subject to a U.S. payroll tax known as the "Medicare tax." Similar to the other U.S. payroll tax - Social Security - the Medicare tax is used to fund the government's Medicare program, which provides subsidized healthcare a Medicare Tax
A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. Net Income
The tax levied on both employers and employees used to fund the Social Security program. Social Security tax is usually collected in the form of payroll tax or self-employment tax. The Social Security tax pays for the retirement and disability benefits re Social Security Tax
The form that an employer must send to an employee and the IRS at the end of the year. The W-2 form reports an employee's annual wages and the amount of taxes withheld from his or her paycheck. W-2 Form
A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer. The W-4 form tells the employer the correct amount of tax to withhold from an employee's paycheck. W-4 Form
The portion of an employee's wages that is not included in his or her paycheck because it is remitted directly to the federal, state and local tax authorities. Withholding reduces the amount of tax employees must pay when they submit their annual tax retu Withholding
Created by: Tarah