Accounting and Finance Foundations

Unit 9

Accounting and Finance Foundations Unit 9: Taxes 710

Taxes

Chapter 21

Student Guide

Lesson 21.4 Key Terms

Payroll Taxes: taxes calculated using earned income; withheld from employees’ paychecks; major source

of revenue for the federal government

Employee Income Taxes: taxes that must be withheld from all employees’ total earnings; amount is based

on each taxpayer’s financial and family situation

FICA: Federal Insurance Contributions Act; provides for a federal system of old-age, survivors’, disability,

and hospital insurance; includes Social Security (old-age, survivors’, and disability insurance) and Medicare

(hospital insurance)

Property Taxes: taxes paid on privately owned property; usually paid semiannually; amount is based on

local tax rates and assessed property value

Sales Taxes: taxes levied on certain products when they are purchased; collected by the seller

Gross Income: amount of total earnings before deductions; also referred to as gross pay

Net Income: amount of paycheck after deductions are taken; also referred to as net pay

W–4 Form: required tax document used to determine the number of withholding allowances per employee;

available at http://www.irs.gov/pub/irs-pdf/fw4.pdf

Withholding Allowance: the number of legal dependents (including the employee himself/herself) that can

be claimed as deductions from total earnings

Internal Revenue Service (IRS): federal agency that collects income taxes

Tax Return: a set of forms that taxpayers use to calculate their tax obligation; must be completed and mailed

or electronically sent by April 15

W–2 Form: summary of earnings and withholdings for the year; blank W–2 available at

http://www.irs.gov/pub/irs-pdf/fw2.pdf