tax study guide

Federal Income Tax
A tax levied on incomes

Medicare Tax
Taxes taken out of an employees’ paycheck to pay for medicare benefits for people 65 and older

Social Security Tax
Pays for retirement and disability benefits

FICA
A U.S. Law requiring a deduction from paychecks and income that goes toward the SSI program and Medicare

FUTA
Allows the federal government to tax businesses for the purpose of collecting money to give to unemployment agencies to give to the unemployed who are eligible for Unemployment insurance

School Tax
taken out of property taxes to help fund the local school district

Property Tax
The amount paid yearly to local government or municipality to keep your house

Earned Income Tax
a refundable tax credit for low to moderate income working individuals and couples—particularly those with children. The amount of EITC benefit depends on a recipient’s income and number of children.

SUTA
State Unemployment Tax Authority is imposed by state and federal governments. Small-business owners pay this tax for each employee without passing the burden to the employee’s paycheck. The rate for this tax may increase or decrease based on how many unemployment claims are made over a period of time, depending on the likelihood of previous employees’ needing to utilize SUTA taxes.

Deductions
the action of subtracting something

W-4
A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer. TheW-4 form tells the employer the correct amount of tax to withhold from an employee’s paycheck.

Filing Status
an important factor when computing taxable income under the federal income tax in the United States. The federal tax filing status defines the type of tax return form an individual will use.

Exemptions
the process of exempting a person from paying taxes on a specified amount of income for themselves and their dependents.

Adjusted Gross Income
an individual’s total gross income minus specific deductions. Taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions.

Tax Credit
an amount of money that can be offset against a tax liability.