Tax Glossary
Plain-English definitions for the terms that show up on your return, your paystub, and in our conversations.
Reviewed October 2026 · General information, not personalized tax advice — see note below.
Adjusted Gross Income (AGI)
Your total income for the year minus specific adjustments (like retirement contributions or student loan interest). AGI is the starting point for figuring out what deductions and credits you qualify for.
Standard Deduction
A flat dollar amount, set by the IRS each year based on your filing status, that reduces your taxable income automatically — no receipts needed.
Itemized Deduction
Specific deductible expenses (mortgage interest, charitable donations, certain medical costs, and more) you list individually instead of taking the standard deduction — only worth doing if the total is higher than your standard deduction.
Tax Credit
A dollar-for-dollar reduction of the tax you owe — more valuable than a deduction of the same size, which only reduces the income your tax is calculated on.
Withholding
The portion of your paycheck your employer sends directly to the IRS and your state on your behalf, based on the elections on your Form W-4.
Estimated Tax Payments
Quarterly payments made directly to the IRS (and often your state) by anyone whose income isn't fully covered by withholding — typically the self-employed, business owners, and anyone with significant investment income.
Form W-2
The year-end form an employer issues to each employee, reporting wages paid and taxes withheld.
Form 1099-NEC
The year-end form a business issues to an independent contractor it paid $2,000 or more during the year (for payments made in 2026 and later; the threshold was $600 for earlier years) — no taxes are withheld on this income.
Filing Status
One of five IRS categories (Single, Married Filing Jointly, Married Filing Separately, Head of Household, Qualifying Surviving Spouse) that determines your standard deduction and tax brackets.
Dependent
A qualifying child or relative you support financially, who you can claim on your return for certain credits — subject to specific IRS residency, relationship, and income tests.
EIN (Employer Identification Number)
A federal tax ID number for a business, similar in purpose to a Social Security number for an individual — required to hire employees, open a business bank account, and file most business tax returns.
Nexus
The level of business connection to a state (a physical location, employees, or enough sales activity) that legally requires you to register and collect that state's sales tax.
Pass-Through Entity
A business structure (like an LLC, partnership, or S-corp) where profit "passes through" to the owners' personal returns instead of being taxed at the business level first.
S-Corp Election
A federal tax election (Form 2553) that changes how an eligible business is taxed — it does not change the underlying legal entity. See our LLC vs. S-Corp article for more.
Form 941
The quarterly federal return an employer files to report income tax, Social Security, and Medicare taxes withheld from employee paychecks.
Sales & Use Tax
Tax collected on the sale of taxable goods or services (sales tax) or owed when a taxable purchase is made without sales tax being collected (use tax) — rates and rules are set at the state level.
Extension
Additional time (usually up to 6 months for income tax returns) to file your return — it extends the filing deadline, not the deadline to pay any tax owed.
A note on this page: these are general, simplified definitions, not tax or legal advice for your specific situation. Terms and rules are set by the IRS and by state law and can change — always confirm current definitions at IRS.gov, or talk with our team about how a term applies to you.