Tax Definitions

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.

earned income: Includes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings.

exemptions: A rule that reduces the amount of income subject to tax. An exemption can be claimed by taxpayers for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption is worth the same amount of reduction, but different rules apply to each.

federal income tax: The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

file a return: To mail or otherwise transmit to an IRS service center the taxpayer's information, in specified format, about income and tax liability. This information-the return-can be filed on paper, electronically (e-file).

gross income: Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment compensation and certain scholarships. It does not include welfare benefits and nontaxable Social Security benefits.

income taxes: Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes).

payroll taxes: Include Social Security and Medicare taxes.

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.

standard deduction: Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency.

state and local taxes: Money paid to the state of local governments. These taxes are in addition to federal taxes.

tax deduction: An amount (often a personal or business expense) that reduces income subject to tax.

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

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 credited against the employees' tax liability when they file their returns.) Employers withhold money for federal income taxes, Social Security taxes and state and local income taxes in some states and localities.

More Tax Definitions from the IRS.