Adjusted gross income (AGI)

Adjusted gross income equals total income less reductions that are allowable, regardless of whether personal deductions are itemized.

Deductions

Amounts that may be subtracted from income that is otherwise taxable.

Earned income

Income from personal services as distinguished from income generated by property or other sources. Earned income includes all amounts received as wages, tips, bonuses, other employee compensation, and self-employment income, whether in the form of money, services, or property.

Federal income tax withheld

The amount taken out of income by the payer and submitted to the IRS as an advance payment of the taxpayer's federal income tax.

Gross income

Total worldwide income received in the form of money, property, or services that is subject to tax.

Medicare tax

The tax taken out of an employee's wages, or the same tax paid by a self-employed person on net self-employment income. The payment of this tax contributes to the taxpayer's medicare coverage under the U.S. social security system. The current tax rate is 1.45% of gross wages (2.9% for self-employed individuals). An additional medicare tax may apply if the taxpayer's wages and compensation exceed a threshold amount.

Nonrefundable credits

A credit which cannot exceed the taxpayer's tax liability.

Social security tax withheld

The employee's share of social security tax that was taken out of the employee's pay and submitted along with the employer's share to the IRS by the employer. The employee pays 6.2% and the employer pays 6.2% on certain employee's gross wage thresholds.

Social security wages

Total wages paid to an employee that are subject to this tax. This amount does not include tips. Wages are also subject to medicare tax.

Tax liability

The amount of total tax due to the IRS after any credits and before considering any advance payments (withholding, estimated payments, etc.) made by the taxpayer.

Taxable income

Adjusted gross income, less itemized deductions or the standard deduction, less the qualified business income deduction, if applicable. This term is also used to refer to income that is not exempt or excluded from taxation. For example, wages are taxable income, but gifts are not.

Unearned income

Taxable income other than that received for services performed (earned income). Unearned income includes money received for the investment of money or other property, such as interest, dividends, and royalties. It also includes pensions, alimony, unemployment compensation, and other income that is not earned.