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Tax terms for ice

ability to pay

A concept of tax fairness that states that people with different amounts of wealth or different amounts of income should pay tax at different rates. Wealth includes assets such as houses, cars, stocks, bonds, and savings accounts. Income includes wages, interest and dividends, and other payments

amount due

Money that taxpayers must pay to the government when the total tax is greater than their total tax payments

dependent

A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption.

exemptions

Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. While each is worth the same amount, different rules apply to each.

filing status

Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married filing a separate return, head of household, and qualifying widow(er) with dependent child.

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.

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 more than half the cost of keeping up a home for the year. 3. A qualifying person lived with you in the home for more than half the year (except temporary absences, such as school). However, a dependent parent does not have to live with the taxpayer.

interest income

The income a person receives from certain bank accounts or from lending money to someone else.

investment income

Includes taxable and tax-exempt interest, dividends, capital gains net income, certain rent and royalty income, and net passive activity income.

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 and deduct your combined allowable expenses.

Medicare tax

Used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65.

personal exemption

Can be claimed for the taxpayer and spouse. Each personal exemption reduces the income subject to tax by the exemption amount.

progressive tax

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

refund

Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

salary

Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked, such as weekly or monthly.

Social Security tax

Provides benefits for retired workers and their dependents as well as for the disabled and their dependents. Also known as the Federal Insurance Contributions Act (FICA) tax.

support

For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and transportation. It also includes welfare, food stamps, and housing provided by the state. Support includes all income, taxable and nontaxable.

tax code

The official body of tax laws and regulations.

tax cut

A reduction in the amount of taxes taken by the government

taxes

A reduction in the amount of taxes taken by the government.

tax exemption

A part of a person's income on which no tax is imposed

tip income

Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the stated amount of the bill and are given voluntarily.

wages

Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked.

proportional tax

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

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 the Social Security tax.

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