Taxable Income

Payroll taxes are amounts of pay withheld from an employee’s paycheck during the payroll process, and employers must usually match these amounts. Some payroll taxes are also known as “FICA taxes.” FICA stands for the “Federal Insurance Contributions Act,” and includes Social Security and Medicare taxes.

Form W-4 provides your employer with your filing status, and optionally, the number of dependents you have, and the tax credits and deductions that you intend to claim when you file your return. The information you include determines how much your employer withholds from your paycheck. Previously called the “Employee’s Withholding Allowance Certificate,” Form W-4 is now called the "Employee's Withholding Certificate" and was redesigned to reflect that you can no longer claim personal or dependency exemptions.

Backup withholding is a type of federal tax withholding on income that otherwise typically doesn't require tax withholding. Although some types of income usually don't have taxes withheld, some situations may require that payers withhold a portion of their payments to you. Backup withholding only applies to certain types of 1099 or gambling income in specific circumstances.

Other income is added together and entered on line 8 of the 2020 Schedule 1 instead. Then the total additional incomes from Schedule 1 are transferred to line 8 on the 2020 Form 1040. Other income includes earnings other than wages or income from self-employment, retirement income, or investments, foreign income, and canceled debts.

Schedule C on Form 1040 is a tax document that must be filed by people who are self-employed. It is a calculation worksheet known as the "Profit or Loss From Business" statement. This is where self-employed income from the year is entered and tallied, and any allowable business expenses are deducted.

A tax swap typically means selling a stock or security that’s underperforming and claiming a capital loss on the transaction. You can carry this loss over and subtract it from your taxable capital gains income if you then purchase a similar, better-performing security, and proceed to sell that to realize a capital gain.

Ad valorem taxes are taxes that are levied as a percentage of the assessed value of a piece of property. Examples of values that could be used to determine an ad valorem tax include the price of a product for a sales tax, or the assessed value of a home for a property tax. Ad valorem is Latin for “according to value,” and this kind of tax is used quite often at the state and local level in the U.S.

A taxable event is an event or transaction that triggers a tax consequence. A taxable event often results in taxes owed, but some taxable events can also reduce your tax bill. Payment of wages, dividends, or interest, and the creation of capital gains are all common examples of taxable events. Some changes in tax filing status—such as from single to head of household, single to married filing jointly, or adding a dependent child—are also considered taxable events.

The net investment income tax is a 3.8% surtax on a portion of your modified adjusted gross income (MAGI) over certain thresholds. It is generally paid by high earners with significant investment income. The net investment income tax can still apply to your finances even if you manage to avoid paying significant income taxes on your investment income through the use of deductions, credits, and other tax perks.