Update (Nov. 28, 2023):
This story has been updated with new tax terms.
Taxes aren’t simple, but they have big ripple effects on our lives — from our financial bottom line to the quality of life in our community.
As we’re reporting on the unequal impact of state and local taxes, we’re coming across a lot of terms we thought could use some explanation.
So we put together a glossary demystifying them.
Taxes levied on goods and services. Examples include sales taxes and tariffs on imported goods.
corporate tax rate
The percentage at which a corporation is taxed on its income.
Any unpaid taxes. This can include situations where the taxpayer has missed the deadline for filing tax returns or didn’t pay by the due date.
earned income tax credit
A tax break that allows lower-income taxpayers with earnings from a job to reduce their tax bill. This type of credit is offered at the federal level and in many — though not all — states. The federal credit is refundable, meaning a taxpayer can receive a deduction larger than the tax they owe, resulting in a refund.
flat income tax
An income tax system with a single tax bracket, everyone taxed at the same rate. This is in contrast to a graduated income tax system consisting of multiple brackets with rates rising up the income scale. Also called a “flat tax.”
A specific type of levy where a tax collection agency will take a portion of your wages to satisfy your tax debt.
graduated income tax
An income tax system consisting of multiple brackets with rates rising up the income scale. This is in contrast to a flat tax system, which has a single tax rate for all income levels.
A group of taxpayers whose taxable income falls within a lower and upper limit, such as between $25,000 and $50,000. Many states set income tax rates that vary by bracket.
A tax on income. In the United States, federal (and many state) income taxes are graduated, meaning the tax system consists of multiple brackets with rates rising up the income scale.
A legal seizure of your property, which could include savings or wages, to satisfy a tax debt.
A legal claim against property to secure payment of tax debt.
An organization that provides free or low-cost assistance to low-income individuals facing tax-related issues. Find your LITC here.
A tax collection agency can agree to settle a debt for less than the amount owed if evidence shows you won’t be able to pay it in full.
A plan agreed upon between the taxpayer and tax collection agency to pay a debt in installments over a specific period of time.
The amount of taxes owed, not including interest and penalties.
A tax or tax system where wealthier people pay a greater percentage of their income than poorer people. The federal system is progressive. The opposite of a progressive tax is a regressive one.
A tax paid on a property, including homes and businesses.
property tax assessments
Property tax assessments are estimates of the value of real estate. The assessed value and property tax rate together determine your tax bill. Assessments are usually conducted by your local government.
refundable tax credit
A tax break that reduces a person’s tax bill and, if the credit amount is larger than the tax owed, results in a refund. Example: the federal Earned Income Tax Credit for lower-income workers.
A tax or tax system where poor people pay a greater percentage of their income than wealthier people. Examples include most property and sales taxes. The opposite of a regressive tax is a progressive one.
A tax added to the purchase of goods and services for consumers and businesses. Sales taxes are a type of consumption tax.
The amount of money spent on taxes by an individual or household as a proportion of their income.
The percentage at which an individual or business is taxed. This could be a rate on income or on something else, such as the cost of a purchase.
Language in the federal and some state constitutions that requires equal collection of taxes. Its purpose in the federal constitution was to prevent Congress from imposing unequal taxation of one state over another. Some state courts, such as Pennsylvania’s, interpret the clause to require a single tax rate.
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