Chapter 1 Flashcards
Adjusted Gross Income
Adjusted gross income equals gross income less reductions that are allowable, regardless of whether personal deductions are itemized.
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.
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.
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.
Nonrefundable Credits
A credit which cannot exceed the taxpayer’s tax liability.
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 $132,900 of the employee’s gross wages (for 2019).
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 the qualified business income deduction, if applicable. 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.
