Basic Tax Terms_Flashcards

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Federal income tax

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A tax levied by the federal government on personal income to fund national programs such as defense, social programs, and interest on the national debt.

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Federal Insurance Contribution Act (FICA) Tax

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Provides benefits for retired and disabled workers and their dependents. Also known as the Social Security tax.

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Form W-4, Employee’s Withholding Allowance Certificate

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Completed by the employee and used by the employer to determine the amount of income tax to withhold.

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Medicare tax

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Used to provide medical benefits for individuals when they reach age 65. Eligible for workers, retired workers, and their spouses.

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Social Security tax

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Provides benefits for retired and disabled workers and their dependents.

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Bonus

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Compensation received by an employee for services performed, in addition to usual compensation.

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Commission

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Compensation based on a percentage of sales made or a fixed amount per sale.

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Salary

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A fixed sum paid for a specific period of time worked, such as weekly or monthly.

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Tip income

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Money and goods received for services performed, given voluntarily beyond the bill amount.

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Wages

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Compensation computed by multiplying an hourly pay rate by the number of hours worked.