Tax Terms Joelle Ivory 4th hour

W2: The form an employer gives to the IRS to report an employee's wage and salary information. A W2 form also reports the amount of federal, state, and other taxes withheld from an employee's paycheck.

W2 Example: Amelia has worked a part time job at a local bakery. She will use the money that she receives back from her W2 to go shopping.

W4: The form that tells the employer the correct amount of tax to withhold from an employee's paycheck based on the employee's, marital status, number of exemptions and dependents.

W4 Example: Joe, who is not married and has no children, claimed zero dependents on his W4 form. He hopes to receive a tax refund at the end of the year due to him paying more in taxes.

1099: The 1099 form is a series of documents that the IRS refers to as "information on returns". This form reports the various types of income you may receive throughout the year

1099 Example: Hal, the owner of Hanson's Architecture, has hired an outside contractor named Bill to complete a job for his company. He gives Bill a 1099 form to fill out for his records of income and services performed.

1040 EZ: This form is designed for taxpayers whose filing status is "single" or "married filing jointly" with no dependents.

1040 EZ Example: Joe just started at a new job and is told he has met the requirements for a 1040 EZ. He receives his 1040 EZ form and filed as a single person with no dependents.

Allowances: When you withhold allowances, you directly affect how much money is withheld from your paycheck. Claiming more allowances will lower the amount of income tax taken out of your check.

Allowances Example: Kristin and John are married, have no kids, and both have jobs. This year, they have decided to file jointly and combine their incomes to submit one a single tax form.

Federal Income Tax: A Federal Income Tax is administered by the IRS and collects money based on a person's earned income.

Federal Income Tax Example: Andrea was surprised when she realized that even at 16 years old she had federal income taxes withheld from her part time job at the grocery store.

FICA (Federal Insurance Contributions Act): law that creates a payroll tax requiring a deduction from the paychecks of employees as well as a contribution from employers. FICA also goes towards Social Security and Medicare.

FICA Example: Grace was more than happy that the government withheld taxes from a person's paycheck so that it could go to her grandmother and other elderly people's insurance.

State Income Taxes: A tax charged by the IRS on the annual earnings of individuals, etc. Required by most states.

State Income Tax Example: Beatrix and Joe just found out that they do not have to pay state income tax because they live in Alaska where income tax is not collected. They will use the extra money towards their wedding in May.

Gross Pay: The amount of money an employee earns from their job.

Gross Pay Example: Although Mark was paid by the hour at his job, he looked at his pay stubs to see what his gross pay was for that period.

Net Pay: The amount of a person's paycheck that is left over after deductions are taken out.

Net Pay Example: Winona was shocked when she realized that she doesn't have enough money to cover her monthly expenses after all her deductions were taken out.

YTD (YEAR TO DATE): A period starting from the beginning of the current year and continuing to present day. Employee's income tax may be based on total earnings in the tax year to date.

YTD Example: Helena learned that her income tax from her full time job at a local automotive company was based off of her earnings in the present tax year to date.

Hourly vs. Salary: A salary employee is paid based on an annual amount. They may also have an employee contract. An hourly employee is paid by the hour and may not have an employee contract.

Hourly vs. Salary Example: After working for a tech company for two years, where Gloria was paid by the hour, she had to decide if she still wanted to be paid hourly at the tech company or go to a new company that offered her a set salary and a higher position.

Deductions: The amount of money deducted from a person's pay.

Deductions Example: After seeing her gross pay, Diana decided that every paycheck she got she would put aside $100 for her 401K.

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