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Financial Literacy - Taxes
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Tax glossary

47. Form 9465 -- An IRS form used to request an installment plan if you cannot pay the full amount of taxes owed.

48. Form W-2 -- By Jan. 31 of each year, your employer will provide you with a statement of how much you earned in wages, tips and other compensation from the previous year. This form will show state and federal taxes, Social Security, Medicare wages and tips withheld.

49. Form W-4 -- This is the employee's withholding allowance certificate, and the information you fill out here allows your employer to calculate the amount of tax to withhold from your pay. You can file a new Form W-4 anytime your tax situation changes and you choose to have more or less tax withheld.

50. Marginal tax rate -- The highest tax bracket at which a portion of a taxpayer's income is taxed. See the definition for effective tax rate.

51. Tax credit -- Tax credits reduce the amount of the tax you owe. Tax credits are more valuable than deductions because they directly reduce the amount of tax you owe dollar for dollar, rather than reducing the amount of income that is taxed. See also the definition for deduction.

52. Refund -- The excess of your withholding and estimated tax payments for the year that you paid over your actual tax liability. Federal income tax refunds are not taxable. State income tax refunds may be taxable if you itemized your deductions in the year the state taxes were paid or withheld.

53. Underpayment penalty -- A penalty for not paying enough total estimated tax and withholding. You can avoid underpayment penalties by paying a percentage of the amount of last year's tax due or the current year's expected tax due. You may pay the taxes in combined estimated and withholding tax payments.

54. Withholding -- Also known as pay-as-you-earn taxation, the method by which taxes are taken out of your wages or other income as you earn it but before you receive your paycheck. These withheld taxes are deposited in an IRS account and you are credited for the amount when you file your return. In some cases, taxes also may be withheld from other income, such as dividends and interest. See also Form W-4.

View glossary archive
-- Posted: Dec. 17, 2007
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