Tax Form Terminology
Site: | Saylor Academy |
Course: | PRDV011: Financial Literacy |
Book: | Tax Form Terminology |
Printed by: | Guest user |
Date: | Wednesday, May 14, 2025, 7:12 AM |
Description

Tax Forms
Tax terminology is the vocabulary used in tax forms and tools individuals use to file, pay, and understand their taxes. Read this summary of some key tax terms.
You have just learned about different types of taxes, like sales tax, property tax, and income tax. One thing we all have in common is the responsibility to pay taxes on any income we receive, whether it is from a job or even interest from a savings account.
In this article, we walk you through the key tax forms you will encounter throughout the year. Unfortunately, there is no logical explanation behind the naming of these tax forms, as the Internal Revenue Service (IRS) simply used whatever letters and numbers were available when the forms were created. But we can help create some fun associations to help remember them.
A journey through the world of taxes typically begins with your first job, so let's start there.
Congratulations on Your New job! Introducing the W4 and I9 Forms
With your new job comes some paperwork, including two very important forms: the W4 and the I9.
W4
The W4 form helps your employer determine how much income tax to deduct from your paycheck. You will answer a few personal questions, such as your marital status and whether you have any kids.
You can update your W4 form anytime your life changes during the year. Your employer will adjust how much taxes they withhold.
W4 (Wage-4): Think of the "w" standing for wage and four, as in the four letters in work. Fill it out when you start a new job so your boss knows how much to deduct in taxes.
I9
The I-9 form ensures you can legally work in the United States. To fill it out, you will need a proper ID, such as a driver's license
or passport.I9 (Identification-9): Think of I for Identification. There are nine numbers in Social Security numbers, so it helps you remember that it is for proving you can legally work in the U.S.
Not a Job, but a Side Gig? Meet the W9
If you are working a side gig or as a freelancer – or if you are starting a new job as an independent contractor – you may need to complete a W9 form. This form gives your taxpayer identification number (or Social Security number) to the person paying you so they can report your income to the IRS.
W9: Focus on the "w" for work since it is related to work like the W4. Remember that the nine is similar to the I9 – you must fill out the W9 and I9 before you start a new job. You will use it when you provide your Taxpayer ID number for stuff outside your regular job.
January: Say Hello to the W2 and 1099 Forms
W2 Form
In January, your employer will send you a very helpful form called the W2. It tells you all about the money you made and the taxes pulled from your paycheck during the previous year. Make sure to keep it safe, as you will definitely need it when you file your taxes!
W2 (Work-2): Again, think of "w" for work or even wage. There are two copies: one for you and one for the tax authorities (IRS). This form reports the wages you earned and taxes withheld during the year.
1099 Form
If you receive any money from any other source, you will receive a 1099 form. This can be from your side job, contract work, or even from your bank for any interest you earned in your account.
1099 (10-99): Remember that it is related to the W9 (they both end with 9). It is the form received for various extra income. You can also think of 99 in it as standing for 99 ways you could earn extra money like side jobs, freelance, gigs, interest, dividends, even lottery and gambling!
January and February: Paying for College or a House? Here Come the 1098 Forms
If you have any educational expenses or you are a homeowner, there is a useful form called the 1098. This form details mortgage interest or college expenses and will arrive during January and February. 1098 form is very helpful because it can help lower your taxes.
Remember the 1099 form as the one that shows all your extra income? Now, the 1098 form is one less than 1099 (1098 = 1099 - 1), which you can remember as a way to subtract or lower the amount in taxes you owe.
The 1098 form helps by reporting your tuition and mortgage interest payments, which could lead to tax deductions.
April and the 1040 Form: The Finale of Tax Season
This timeline shows a typical order of tax forms you will encounter starting with your job.
As
they say, all things must come to an end, especially when it comes to
taxes. The grand finale for wrapping up taxes is usually in April. This is the day you'll need to complete the 1040 form,
letting the government know about your income and nailing down your
final taxes for the year.
Remember, the 1040 form uses all the information you have collected from your W2s, 1099s, and other forms. Once you complete it, you will know if you owe taxes or if you are getting a refund.
Many people get their taxes out of the way before the April deadline, but it is the last call to get them done.
To remember the 1040 form, consider it the "10-4" moment in the movies. In classic walkie-talkie lingo, "10-4" means "got it" and signifies the end of communication. Now, simply add a "ty" after "4," and you have connected with the form's name: 10-4ty.
When you file your 1040 form, you are telling the government, "10-4, got it!" and wrapping up your annual income communication with them. Just like the "10-4" in the movies, it is a quick and memorable way to know you have reached the end – nothing more after. In this case, it's the end of your taxes for the year.
Source: Khan Academy, https://www.khanacademy.org/college-careers-more/financial-literacy/xa6995ea67a8e9fdd:taxes-and-tax-forms/xa6995ea67a8e9fdd:tax-forms/a/tax-forms This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.
Key Tax Terminology
1. Gross and Taxable Income
Gross income is your total income over the year. This includes everything from wages and tips to any interest, dividends, or capital gains you earned. Right off the bat, you can subtract certain things from your gross income – above-the-line deductions. That will give you what's called your adjusted gross income.
From there, you may claim certain exemptions and deductions. Once those exemptions and deductions are taken, the number you are left with is called your taxable income. You calculate your taxes based on that amount.
2. Tax Deductions
You may deduct certain expenses when calculating your taxable income. For example, if you made $45,000 last year and have $5,000 in deductions, you effectively pay taxes on $40,000 of income.
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Above-the-Line Deductions: These are subtracted from your gross income right off the bat; they include qualified contributions to retirement accounts and alimony payments.
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Itemized Deductions: Additional deductions are calculated using the IRS Form 1040 Schedule A. These deductions include certain medical expenses, charitable contributions, and more.
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Standard Deduction: If you choose not to itemize, you can generally qualify to take a standard deduction. This is available to most people, though certain restrictions apply, and the amount is determined by your filing status. You may choose to itemize if your itemized deductions would exceed the amount of the standard deduction.
3. Tax Credits
A tax credit reduces the taxes you owe the government dollar for dollar. With some credits, if your credit exceeds how much you owe, you're entitled to get the difference back as a refund.
One of the most popular credits is the Earned Income Credit (EIC), meant to reduce taxes for lower- and middle-income families. The amount of the credit is determined by your income and number of children.
4. Dependents
A dependent is someone you support financially – for example, elderly parents or children. Claiming dependents may help qualify you for exemptions and credits. Children may qualify as dependents until age 19 or 24 if they are full-time students.
Older children or adults who qualify as dependents may still file tax returns and may even be required to file if their incomes exceed certain amounts.
5. Exemptions/Allowances*
In the past, "exemptions" or "allowances" were like special money coupons that could lower the amount of your pay that was taxed. The amount you could lower your taxes by was based on the number of people living in your home.
However, after new tax laws were passed in 2018, they said goodbye to these specific terms. Even though we don't use these names anymore, we still provide similar info through the W-4 form that helps the IRS figure out how much money to set aside from our paychecks for taxes. So, while the rules changed a little, the overall idea is still pretty much the same: the number of people living in your home affects your taxes.
Taxes are calculated on the amount that is left over after all deductions (and exemptions*) are taken out.
6. Marriage Penalty vs. Bonus
Married couples can file taxes together or separately. Depending on how much money you both make and how that income is distributed, the amount you owe the government as a couple filing together may be higher or lower than if you file separately. If you owe more as a married couple, it is often called a marriage penalty. If you owe less, it is often referred to as a marriage bonus.
7. Tax Brackets and Rates
Because the U.S. tax system is progressive, different portions of your income are taxed at different rates. Income levels are divided into brackets with higher tax rates on higher income brackets. Whatever tax bracket the highest dollar of your income falls into is your marginal tax rate. But because of the progressive system, your tax bill is likely smaller than that. What you actually pay is known as your effective tax rate.
* The term "exemption" is no longer a tax term but refers to the fact that a number of people living in a household affects the amount of taxes taken out.