Plain-language definitions of common tax terms.
- Adjusted Gross Income (AGI)
- Your total gross income minus specific adjustments (the 'above-the-line' deductions). AGI is the starting point for many tax calculations and phase-outs.
- AMT (Alternative Minimum Tax)
- A parallel tax system designed to ensure higher-income taxpayers pay a minimum amount of tax regardless of their deductions and credits.
- Capital Gain
- Profit from the sale of an investment or property. Long-term gains (held >1 year) generally receive preferential tax rates.
- Credit (Tax Credit)
- Reduces tax owed dollar-for-dollar. More valuable than an equal-dollar deduction.
- Deduction
- Reduces taxable income. Its value depends on your marginal tax rate.
- Dependent
- A qualifying child or relative whom you support and can claim for certain credits.
- Earned Income Credit (EIC)
- Refundable credit for low- to moderate-income working taxpayers.
- Estimated Tax
- Quarterly tax payments required when you don't have enough tax withheld from your income (e.g., self-employment).
- Filing Status
- Single, MFJ, MFS, HOH, or Qualifying Surviving Spouse: affects rates, deductions, and credits.
- Form 1040
- The standard U.S. individual income tax return.
- FUTA
- Federal Unemployment Tax Act: federal payroll tax paid by employers.
- Itemized Deductions
- Specific deductions (SALT, mortgage interest, charity, medical) reported on Schedule A: used in lieu of the standard deduction when greater.
- Marginal Tax Rate
- The tax rate applied to your last (highest) dollar of taxable income.
- QBI (Qualified Business Income)
- Up to 20% deduction for pass-through business income, subject to thresholds and phase-outs.
- RMD (Required Minimum Distribution)
- Mandatory annual withdrawal from most pre-tax retirement accounts beginning at age 73.
- Roth IRA
- Retirement account funded with after-tax dollars; qualified withdrawals (incl. growth) are tax-free.
- Schedule C
- Profit or Loss from Business: reports self-employment income.
- Self-Employment Tax
- Social Security and Medicare tax on net self-employment earnings (15.3% on the first $176,100 of net earnings × 92.35% in 2025).
- Standard Deduction
- A flat dollar deduction available to taxpayers who don't itemize.
- Tax Bracket
- A range of taxable income taxed at a specific marginal rate.
- W-2
- Form reporting wages and tax withholdings from employment.
- W-4
- Form employees give to employers to set federal income tax withholding.
- Withholding
- Tax pre-paid from your wages or other income to the IRS throughout the year.