Tax Glossary
Every term in plain English. IRS-sourced.
A
Adjusted Gross Income (AGI)
Your total income minus specific deductions like student loan interest and IRA contributions. It's the number that determines your eligibility for many tax breaks.
Audit
When the IRS reviews your tax return to verify the information is correct. Most are done by mail, not in person.
Alternative Minimum Tax (AMT)
A parallel tax system that ensures high-income taxpayers pay at least a minimum amount, even with many deductions and credits.
Above-the-Line Deduction
Deductions you can take even if you don't itemize. They reduce your AGI, which can unlock other tax benefits.
C
Capital Gains
Profit from selling an asset (stocks, crypto, property) for more than you paid. Taxed differently depending on how long you held it.
Child Tax Credit
Up to $2,200 per qualifying child under 17. Partially refundable — you may get money back even if you owe no tax.
Cost Basis
What you originally paid for an asset. When you sell, your taxable gain is the sale price minus the cost basis.
Capital Loss
A loss from selling an asset for less than you paid. Can offset capital gains and up to $3,000 of ordinary income per year.
Child Tax Credit — 2026 Rules
Up to $2,200 per child under 17 for 2026. Partially refundable through the Additional Child Tax Credit.
E
Earned Income Tax Credit (EITC)
A refundable credit for low-to-moderate income workers. Can be worth up to $7,830 for 2026.
Education Credits
Tax credits for college expenses: the American Opportunity Credit (up to $2,500) and Lifetime Learning Credit (up to $2,000).
Estimated Tax Payments
Quarterly tax payments made by people who don't have enough tax withheld — freelancers, investors, retirees, and business owners.
Earned Income Credit (EIC)
Another name for the EITC. A refundable credit for working individuals and families with low to moderate income.
F
Filing Status
Your tax category based on marital status and family situation. Determines your tax brackets, standard deduction, and credit eligibility.
Form 1099
A family of forms reporting income you received that isn't on a W-2. There are many types: 1099-NEC, 1099-INT, 1099-DIV, 1099-K, 1099-DA.
FICA (Social Security + Medicare)
The 7.65% tax taken from your paycheck for Social Security and Medicare. Your employer pays another 7.65%.
Form 1099 (General Overview)
The 1099 family reports all kinds of non-wage income to the IRS. If someone paid you and it wasn't wages, a 1099 probably reported it.
Filing Status (Detailed)
Five categories determine your tax rates, standard deduction, and credit eligibility: Single, MFJ, MFS, HoH, and QSS.
H
Head of Household
A filing status for unmarried people who pay more than half the cost of maintaining a home for a qualifying dependent.
Health Savings Account (HSA)
A triple-tax-advantaged savings account for medical expenses. Only available if you have a high-deductible health plan.
Health Savings Account (HSA) — 2026 Limits
Contribution limits for 2026: $4,300 individual, $8,550 family. The only account with triple tax benefits.
I
Itemized Deductions
Specific expenses you list on Schedule A instead of taking the standard deduction. Only worth it if they exceed the standard deduction.
IRA (Individual Retirement Account)
A retirement savings account with tax benefits. Traditional IRA: tax-deductible now, taxed later. Roth IRA: taxed now, tax-free later.
M
Q
Quarterly Estimated Taxes
Tax payments you make 4 times a year if you have income without withholding (freelance, investment, rental).
Qualified Business Income (QBI) Deduction
A deduction of up to 20% of qualified business income for pass-through entities. Also called the Section 199A deduction.
Qualified Dividends
Dividends taxed at the lower long-term capital gains rates (0%, 15%, or 20%) instead of your ordinary income rate.
R
Refundable vs. Nonrefundable Credit
Refundable credits can give you money back beyond $0 tax. Nonrefundable credits can only reduce your tax to $0.
Roth IRA
A retirement account where you contribute after-tax money now but withdrawals in retirement are completely tax-free. No required minimum distributions.
Required Minimum Distribution (RMD)
The minimum amount you must withdraw annually from retirement accounts starting at age 73. Applies to traditional IRAs, 401(k)s, and similar accounts.
S
Schedule C
The form where sole proprietors and freelancers report business income and expenses. Attached to your 1040.
Self-Employment Tax
The 15.3% tax freelancers and sole proprietors pay to cover Social Security and Medicare. On top of income tax.
Standard Deduction
A flat amount the IRS lets you subtract from your income before calculating tax. Most people take it.
T
Tax Credit vs. Tax Deduction
A deduction reduces your taxable income. A credit reduces your actual tax bill. Credits are more valuable dollar-for-dollar.
Tax Extension (Form 4868)
Gives you 6 extra months to file your return. Does NOT extend the payment deadline — you still owe by April 15.
Tax Penalty
An additional charge the IRS adds when you file late, pay late, or make errors. Separate from interest.
Tax Bracket
The range of income taxed at a specific rate. The US has 7 brackets from 10% to 37%. Only income within each bracket is taxed at that rate.
Tax Return
The form (1040) you file with the IRS each year reporting your income, deductions, and credits to calculate how much tax you owe or get refunded.
Traditional IRA
A retirement account where contributions may be tax-deductible now, but withdrawals in retirement are taxed as ordinary income.
Tax Withholding
The portion of your pay that your employer sends directly to the IRS. It's a pre-payment toward your annual tax bill.
W
W-2
The form your employer gives you showing how much you earned and how much tax was withheld during the year.
W-4
The form you fill out when starting a job that tells your employer how much federal tax to withhold from your paycheck.
Withholding
Money your employer takes from each paycheck and sends to the IRS on your behalf. It's a pre-payment of your taxes.