Tax Terms in US quick overview
Are you confused about the tax terms and jargon used in the United States tax system? Understanding tax terms can be daunting and complex. In this article, we’ll break down the most common tax terms in the US and their meanings to help you navigate the tax system with ease.
Table of Contents
- Introduction
- Gross Income
- Adjusted Gross Income (AGI)
- Taxable Income
- Marginal Tax Rate
- Standard Deduction
- Itemized Deductions
- Tax Credits
- Withholding
- Self-Employment Tax
- Estimated Tax
- Tax Audit
- Tax Refund
- Tax Extension
- Conclusion
1. Introduction
As a taxpayer, it’s essential to understand the tax terminology used by the IRS (Internal Revenue Service). Failing to comprehend tax jargon can result in costly mistakes and may lead to issues with the IRS. Understanding tax terms can help you make informed decisions and take advantage of tax-saving opportunities for any particular US job.
2. Gross Income
Gross income is the total amount of income earned from all sources, including wages, salaries, tips, interest, dividends, and business income. Gross income is reported on Form W-2 for employees and Form 1099 for self-employed individuals.
3. Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is the amount of income left after deducting specific expenses from your gross income. These expenses include IRA contributions, alimony payments, and student loan interest. AGI is used to determine eligibility for various tax deductions and credits.
4. Taxable Income
Taxable income is the amount of income subject to federal income tax after all deductions and exemptions have been applied. It is calculated by subtracting either the standard deduction or itemized deductions from AGI.
Difference between Corp to corp , w2 and 1099 tax terms
| No. | Tax Term | Definition |
|---|---|---|
| 1 | Taxable Income | The portion of an individual’s income that is subject to federal income tax. |
| 2 | Filing Status | The classification that determines an individual’s tax rate, standard deduction, and eligibility for certain tax credits. |
| 3 | Withholding | The amount of tax that an employer deducts from an employee’s paycheck to cover their federal income tax liability. |
| 4 | Tax Bracket | A range of taxable income that is subject to a specific tax rate. |
| 5 | Tax Credit | A dollar-for-dollar reduction in the amount of tax owed. |
| 6 | Tax Deduction | An expense that can be subtracted from an individual’s taxable income, reducing their tax liability. |
| 7 | Standard Deduction | A set amount of money that individuals can deduct from their taxable income to reduce their tax liability. |
| 8 | Itemized Deduction | A deduction that allows individuals to deduct specific expenses from their taxable income, such as medical expenses or charitable donations. |
| 9 | Exemption | An amount of money that can be subtracted from an individual’s taxable income for themselves and their dependents. |
| 10 | Corp to Corp (C2C) | A type of business arrangement where two companies work together as separate legal entities. In a C2C arrangement, one company hires another company to provide services, and both companies are responsible for their own taxes and liabilities. |
| 11 | W2 | A tax form that employers use to report an employee’s wages, tips, and other compensation. Employees use the W2 form to file their tax returns. |
| 12 | 1099 | A tax form that businesses use to report payments made to independent contractors, such as freelancers or consultants. Independent contractors use the 1099 form to report their income on their tax returns. |
5. Marginal Tax Rate
The marginal tax rate is the rate at which the last dollar of taxable income is taxed. The US tax system for corp to corp jobs uses a progressive tax system, which means that the higher the taxable income, the higher the marginal tax rate. Marginal tax rates can range from 10% to 37%, depending on the taxpayer’s income level.
6. Standard Deduction
The standard deduction is a fixed amount that taxpayers can deduct from their taxable income without itemizing deductions. It reduces the amount of income that is subject to tax. For the tax year 2022, the standard deduction is $12,950 for married filing jointly, $6,475 for single filers, and $9,600 for head of household filers.
7. Itemized Deductions
Itemized deductions are expenses that taxpayers can deduct from their taxable income. They include expenses such as medical and dental expenses, state and local taxes, mortgage interest, charitable contributions, and other qualifying expenses. Taxpayers can choose to take either the standard deduction or itemize their deductions, whichever is higher in Tax Terms in US.
8. Tax Credits
Tax credits are dollar-for-dollar reductions in the amount of tax owed. They are more beneficial than deductions as they directly reduce the tax liability. Some common tax credits include the child tax credit, earned income tax credit, and the American opportunity tax credit.
9. Withholding
Withholding is the amount of money that is taken out of an employee’s paycheck to pay for federal income tax. Employers are required to withhold the correct amount of tax from their employee’s paycheck based on the information provided on Form W-4.
11. Estimated Tax
Estimated tax is the amount of tax that self-employed individuals and taxpayers who receive income that is not subject to withholding are required to pay throughout the year. This tax is paid quarterly and is based on the taxpayer’s estimated taxable income for the year.
12. Tax Audit
A tax audit is an examination of a taxpayer’s financial records to ensure that they have reported their income and expenses accurately. The IRS conducts audits to verify that taxpayers have paid the correct amount of tax owed.
13. Tax Refund
A tax refund is the amount of money that the government owes taxpayers when their tax payments exceed their tax liability. Taxpayers can receive their refund via direct deposit, paper check, or by using their refund to purchase US Savings Bonds.
14. Tax Extension in Tax Terms in US
A tax extension is a request to extend the deadline for filing a tax return. Taxpayers can file an extension request with the IRS to receive an additional six months to file their tax return. However, it’s important to note that an extension to file does not extend the time to pay any tax owed.
15. Conclusion
In conclusion, understanding Tax Terms in US and jargon is crucial to navigating the US tax system. This article has provided an overview of the most common tax terms and their meanings. By having a clear understanding of these terms, taxpayers can make informed decisions and take advantage of tax-saving opportunities.
5 tax terms in US FAQs
- What is the difference between a tax deduction and a tax credit?
A tax deduction reduces your taxable income, while a tax credit directly reduces your tax liability. - What is the maximum income that can be excluded from taxation under the Foreign Earned Income Exclusion (FEIE)?
The maximum income that can be excluded from taxation under FEIE is $108,700 for the tax year 2021. - How long does the IRS have to audit a tax return?
The IRS generally has three years from the date of filing to audit a tax return. - Can I deduct my home office expenses if I work from home?
If you are self-employed or an independent contractor, you may be able to deduct certain home office expenses on your tax return. - What happens if I don’t file my tax return?
If you fail to file your tax return, you may face penalties and interest charges. The longer you wait to file your return, the more penalties and interest you may accrue.
Read more
top 10 staffing companies in usa
More Corp to corp hotlist
Join linkedin 35000+ US Active recruiters Network
Join No.1 Telegram channel for daily US JOBS and Updated HOTLIST