The language of money
Every tax word, explained plainly
Find the words behind your pay, taxes and purchases. Each term has a plain explanation and a more precise version. Browse by topic or search for a word.
Definitions of the tax terms used across this site, with plain explanations, technical detail and links to the underlying calculations. Browse by topic or search for a term.
32 terms
Income tax
What gets taxed, at what rate, and what comes off first.
- deductionSomething that lowers the income you get taxed on.An amount subtracted from gross income in arriving at taxable income.
- effective tax rateWhat you actually paid, as a share of what you earned.Total liability divided by income; the average rather than the incremental rate.
- flat taxOne rate on all taxable income, with no brackets.A single statutory rate applied to all taxable income, without graduation.
- gross incomeYour income before tax and deductions.Income included for tax purposes before adjustments, deductions and withholding.
- itemized deductionAdding up your real expenses instead of taking the standard amount.An election to deduct enumerated qualifying expenditures in place of the standard deduction.
- local income taxAn income tax charged by a city or county on top of the state's.A municipal or county levy on income, additional to state and federal.
- marginal rateThe rate charged on your next dollar — not on everything you earn.The rate applying to the next dollar of income, as distinct from the average rate on all income.
- standard deductionThe slice of your income the government does not tax at all.A fixed statutory reduction of gross income, taken before rates are applied.
- surtaxAn extra tax charged on top of an existing one.An additional levy imposed upon an existing tax base or liability.
- tax bracketA band of income with its own rate attached.A range of taxable income to which a single statutory rate applies under a graduated schedule.
- tax creditAn amount taken straight off the tax you owe.A direct reduction of tax liability, as distinct from a reduction of the base.
- taxable incomeThe part of your income that tax is actually worked out on.Gross income less allowable deductions; the base to which statutory rates apply.
Your paycheck
What happens between the salary you were offered and the money that arrives.
- payroll taxThe tax on wages that funds Social Security and Medicare.Social Security and Medicare contributions levied on wages, distinct from income tax.
- pre-taxMoney taken from your pay before tax is worked out.Amounts excluded from taxable wages before withholding is computed.
- take-home payWhat actually lands in your account after everything comes out.Gross compensation net of taxes withheld and elected deductions.
- wage baseThe income ceiling above which Social Security tax stops.The annually indexed maximum of wages subject to Social Security tax.
- withholdingTax taken out of your pay before you ever see it.Advance collection of income tax at source, remitted by the payer against the eventual liability.
Buying things
The tax added at the register, and the rules about what escapes it.
- sales taxThe tax added to the price when you buy something.A transaction tax on retail sales, levied by states and commonly by local jurisdictions in addition.
- tax holidayA few days when a state switches off sales tax on certain things.A statutory suspension of sales tax on enumerated categories for a defined window.
- use taxThe tax you owe on something bought untaxed elsewhere.A complement to sales tax on goods acquired untaxed and consumed within the state.
Property
The annual bill on a home, and the valuation it is worked out from.
Fuel, drink and tobacco
Taxes aimed at one product rather than at spending generally.
- control stateA state that sells liquor itself instead of just taxing it.A jurisdiction exercising a state monopoly over wholesale distribution of distilled spirits.
- exciseA tax on one specific product, not on shopping in general.A tax on a specific commodity, typically specific rather than ad valorem and levied upstream.
Filing and rules
The machinery: who counts as what, and which state gets to charge you.
- filing statusWhich category you file under. Single, married, or head of household.The statutory category determining bracket thresholds, deduction amounts and credit eligibility.
- head of householdA filing status for someone supporting a household alone.A filing status for unmarried taxpayers maintaining a household for a qualifying person.
- nexusThe connection that lets a state tax a business.The connection between a taxpayer and a jurisdiction sufficient to establish taxing authority.
- reciprocityA deal between two states so you only pay tax where you live.An agreement assigning taxing rights over wage income to the state of residence.
Ideas that keep coming up
The handful of distinctions that make everything else make sense.
- ad valoremA tax charged as a percentage of value.A tax levied as a proportion of value rather than per unit.
- after-taxWhat is left once the government has taken its share.A quantity measured net of applicable tax.
- exemptionSomething the tax does not apply to at all.A statutory exclusion of a person, item or amount from the tax base.
- specific taxA tax charged per item or per unit, not by value.A tax levied per physical unit, invariant to price.