Income Taxes Tax evasion: failure to pay taxes or a deliberate underpayment of taxes (this is an illegal activity) Tax avoidance:actions taken to lessen one’s tax liability and maximize after-tax income (this is a legal activity for individuals to take)

Withholding: Employers deduct money from employee’s paychecks. This money is deposited with the IRS on behalf of the employee in order to pay the employee’s income tax. This is done with each paycheck, to help pay the taxes as the income is earned. Employees get to count the amount withheld against the tax liability they actually owe.

Payroll Deduction The tax an employer withholds from an employee’s pay And/or: the tax an employer pays on behalf of their employees based on the wage or salary of the employee. Used in most cases for income tax payments as well as payments for Social Security and Medicare

The wages of sin is death… (from the Bible, Romans 6:23) …but after taxes are taken out it’s just a really tired feeling. (from comedienne Paula Poundstone)

Exemptions and Deductions Exemptions: reductions to income for the taxpayer; if certain income is qualified by tax law to be exempt then it is not subject to taxation at all Deductions: allowable subtractions from one’s total income to decrease taxable income

Dependents: individuals who reside with a taxpayer and count on that taxpayer for at least half of their support; a taxpayer is allowed to deduct from their adjusted gross income some of the expenses to provide support to these individuals; there are specific rules (including age, ability, and residency) for a person to qualify as a dependent

Tax Credits : amounts that tax law allows you to count toward the tax payments you’ve already paid it basically lets you pretend you’ve paid more taxes than you really have these amounts are usually based on expenses for specific items for which you’ve already paid