Ch 1 - Terms (Wages, Income, and Taxes) Flashcards
Learn Chapter 1
Adjusted Gross Income
AGI: Adjusted gross income equals gross income less reductions that are allowable, regardless of whether personal deductions are itemized.
Credits
A direct reduction of tax liability allowed for various purposes to taxpayers who meet the qualifications. Some credits are refundable; that is, the IRS will send the taxpayer a refund for any amount in excess of the tax liability. Some credits are nonrefundable; that is, they can only reduce tax liability to zero. Some credits may be carried to other tax years.
Deductions
Amounts that may be subtracted from income that is otherwise taxable.
Earned Income
Income from personal services as distinguished from income generated by property or other sources. Earned income includes all amounts received as wages, tips, bonuses, other employee compensation, and self-employment income, whether in the form of money, services, or property.
Exemption
An amount ($4,050 for 2017) allowed by law as a reduction of income that would otherwise be taxed. See also Personal and Dependency Exemptions.
Federal Income Tax Withheld
The amount taken out of income by the payer and submitted to the IRS as an advance payment of the taxpayer’s federal income tax.
Gross Income
Total worldwide income received in the form of money, property, or services that is subject to tax.
Income
The word “income,” in its broad sense, is the gain derived from capital, labor, or a combination of the two. It is distinguishable from the capital itself. Ordinarily, for income tax purposes, the word “income” is not used alone. Rather it is used within such descriptive terms as gross income,taxable income, and adjusted gross income, all of which are defined elsewhere in this glossary.
Medicare Part A
Medicare insurance for qualifying individuals who are age 65 or older or disabled. Medicare Part A covers hospital expenses, care in a skilled nursing facility, hospice care, and some health care. Most participants do not pay a monthly premium for this coverage if they or their spouse paid medicare taxes while working.
Social Security Tax Withheld
The employee’s share of social security tax that was taken out of the employee’s pay and submitted along with the employer’s share to the IRS by the employer. The employee pays 6.2% and the employer pays 6.2% of the first $127,200 of the employee’s gross wages (for 2017).
Social Security Wages
Total wages paid to an employee that are subject to this tax. This amount does not include tips. Wages are also subject to medicare tax.
Tax Liability
The amount of total tax due to the IRS after any credits and before taking into account any advance payments (withholding, estimated payments, etc.) made by the taxpayer.
Taxable Income
Adjusted gross income, less itemized deductions or the standard deduction, less allowable personal and dependent exemption amounts. This term is also used to refer to income that is not exempt or excluded from taxation. For example, “Wages are taxable income, but gifts are not.”
Unearned Income
Taxable income other than that received for services performed (earned income). Unearned income includes money received for the investment of money or other property, such as interest, dividends, and royalties. It also includes pensions, alimony, unemployment compensation, and other income that is not earned.
Schedules
Official IRS forms used to report various types of income, deductions, and/or credits.
