Terms


W-4 Form

An employee completes an IRS W-4 form, or an Employee's Withholding Allowance Certificate, to indicate his tax situation to the employer. The W-4 form 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 and other factors

Taxpayers can file a new W-4 any time their situation changes, such as when they marry, divorce or have a child, or when a dependent dies. A change in status can result in the employer withholding more or less tax.
Read more: W-4 Definition | Investopedia

Form 1095-A

Form 1095-A: Health Insurance Marketplace Statement is an Internal Revenue Service (IRS) form sent to anybody who receive health insurance coverage through a Health Insurance Marketplace carrier. The form details information such as the effective date of the coverage, premium amounts, and any advance payments of the premium tax credit or subsidy.

You will receive 1095-A if you enrolled in a qualified health plan via the Health Insurance Marketplace or Exchange. The exchanges use the form to provide participants in different individual markets with information on their coverage

You do not have to submit Form 1095-A itself. Instead, you should keep it for your records after you've filed your tax return. You usually have to provide information from these forms, or acknowledge that you have received one of them, on your federal tax return.
Read more: 1095-A Definition | Investopedia


Child Tax Credit

The Child Tax Credit is given to taxpayers for each qualifying dependent child who is under the age of 17 at the end of the tax year. The tax legislation passed in December 2017 doubled the credit to $2,000 per child and made much of it refundable. Previously, it was a $1,000 nonrefundable credit. A credit reduces the taxpayer's liability on a dollar-for-dollar basis, intended to provide an extra measure of tax relief for taxpayers with qualifying dependents.

The new $2,000-per-qualifying-dependent-child credit makes $1,400 of the Child Tax Credit refundable. This means that even if the parent ends up owing no taxes, or owing less than $1,400, up to that amount can be received as a tax refund if the child and parent qualify.
Read more: Child Tax Credit Definition | Investopedia

Earned Income Tax Credit

The earned income credit (EIC) is a United States tax credit that helps certain taxpayers with low incomes from work in a particular tax year. The EIC reduces the amount of tax owed on a dollar-for-dollar basis, and may result in a refund to the taxpayer if the amount of the credit is greater than the amount of tax owed.

The amount of credit that any one individual can claim depends on the annual income earned for the tax year and the number of qualified dependents that the taxpayer has. A qualified dependent, according to the IRS, is a child that is related to the taxpayer either by birth, adoption, or fostering. The child can also be a sibling or the child of a sibling such as a niece or nephew.
Read more: Earned Income Credit Definition | Investopedia


Standard Deduction

The Internal Revenue Service (IRS) standard deduction is the portion of income that is not subject to tax that can be used to reduce your tax bill. You can only take the standard deduction if you do not itemize your deductions using Schedule A of Form 1040 to calculate taxable income. The amount of your standard deduction is based on your filing status, age and whether you are disabled or claimed as a dependent on someone else’s tax return.

The income tax is the amount of money that the federal or state government takes from your taxable income. It is important to note that taxable income and total income earned for the year are not the same. This is because the government allows a portion of the total income earned to be subtracted or deducted to reduce the income that will be taxed. Taxable income is usually smaller than total income due to deductions, which help to reduce your tax bill.

For 2018 taxes filed in April 2019 the standard deductions are as follows:

  • $12,000 for single taxpayers
  • $12,000 for married taxpayers filing separately
  • $18,000 for heads of households
  • $24,000 for married taxpayers filing jointly
  • $24,000 for qualifying widow(er)s
  • Read more: Standard Deduction Definition | Investopedia

    Qualified Business Income Deduction

    To be eligible to claim a tax deduction for 20% of qualified business income (QBI), your business must be a pass-through entity. Pass-through entities are so named because the business’s income “passes through” to the owner. It isn’t taxed at the business level, but instead at the individual level. Owners of pass-through businesses pay tax on their business income at individual tax rates. Pass-through businesses include sole proprietorships, partnerships, S corporations, trusts and estates. By contrast, C corporation income is subject to corporate tax rates.

    So what is “qualified business income”? The IRS defines it as net business income, not including capital gains and losses, certain dividends or interest income. The 20% deduction reduces federal and state income taxes but not Social Security or Medicare taxes, which means it also doesn’t reduce self-employment taxes, a term that refers to the employer-plus-employee portions of these taxes that people pay when they run their own businesses.
    Read more: QBI Deduction Definition | Investopedia