Financial Glossary

Your total gross income minus specific deductions. AGI is used to determine eligibility for certain tax deductions and credits.

An expense that reduces your taxable income, thereby lowering the amount of tax you owe. Deductions can be standard or itemized.

A reduction in taxable income granted for taxpayers and their dependents. The Tax Cuts and Jobs Act eliminated personal exemptions from 2018 through 2025.

A federal payroll tax that funds Social Security and Medicare programs. Both employees and employers pay FICA taxes.

Specific expenses that taxpayers can claim on their tax returns instead of taking the standard deduction. These may include mortgage interest, charitable donations, and medical expenses.

The tax rate that applies to the last dollar of your income. The U.S. uses a progressive tax system with different rates for different income brackets.

A federal payroll tax that funds the Medicare program. The basic rate is 1.45% for employees, with an additional 0.9% for high-income earners.

Taxes withheld from an employee's paycheck, including federal income tax, state income tax, Social Security tax, and Medicare tax.

A federal payroll tax that funds the Social Security program. The rate is 6.2% on earnings up to a certain wage base limit ($168,600 for 2024).

A fixed dollar amount that reduces your taxable income. Taxpayers can choose to take the standard deduction or itemize deductions, whichever is greater.

A range of incomes taxed at a specific rate. The U.S. federal income tax system uses multiple brackets with progressively higher rates.

A dollar-for-dollar reduction in the amount of tax you owe. Tax credits are more valuable than deductions because they directly reduce your tax liability.

A tax form issued by employers that reports an employee's annual wages and taxes withheld. Employees use this form when filing their tax returns.

A form completed by employees to tell employers how much tax to withhold from their paychecks. Proper completion helps avoid owing taxes or receiving a large refund.

The amount of money your employer deducts from your paycheck to cover your estimated tax obligations. Proper withholding helps ensure you don't owe a large amount at tax time.