TaxGarden Glossary

Tax Terms Reference

Adjusted Gross Income

This is the total income, minus certain amounts, like deductible IRA contribution or student loan interest.

Amount Due

Money that the taxpayers owe to the government when the total tax is greater than their total tax payment.

Alaska Dividend

This is a Permanent Dividend Fund Paid directly by the Alaska State Government. This is a non-taxable income under the State Government but is subjected to Federal Income Tax.

Allocated Tips

This a special type of tip income amount allocated when an individual is employed in any food and beverage institutions.


A qualifying child or qualifying relative, other than the taxpayer or spouse. A Dependent is the one who entitles the taxpayer to claim a dependency exemption.

Dependent Care Benefit

This is a deduction made from an individual’s wages for childcare or other dependent care welfares.

Direct Deposit

This is a method of allowing tax refunds to be deposited directly to the taxpayer's bank account. Direct Deposit is a fast, simple, safe, secure way to get a tax refund.

Direct Tax

A tax that cannot be shifted to others, such as the federal income tax.

Earned Income

This is the amount of money a citizen earns and it includes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings. Earned Income applies whether you receive a paycheck or you are self-employed and pay yourself.

Earned Income Credit

A refundable tax credit targeted at workers who make low to moderate incomes.

Electronic filing (e-file)

It is a method or process of transmitting tax information directly to the IRS using telephones or computers. There are two ways for Electronic filing.

  1. Online self-prepared using a personal computer and tax preparation software.
  2. With the help and guidance of a tax professional.

Early Withdrawal Penalty

When money is withdrawn from individual retirement account before age 59 1/2, the individual will generally have to pay a 10 percent penalty known as early withdrawal penalty.

Electronic Preparation

Electronic preparation means that tax preparation software and computers are used to complete tax returns. Electronic tax preparation helps to reduce errors.


Employer Identification Number, used by employees to identify their employers to the IRS.


A type of deduction claimed for yourself, your spouse (if filing jointly), and each your dependents.


This is a type of grant that is generally received for educational or scholarly purposes.

Filing Status

A category of taxpayer. Each taxpayer must select a filing status on their tax return. Filing status determines things such as your overall tax rate and your eligibility and income limits for various credits and deductions.

Gross Income

The total amount of income that you must report on your tax return. This is nothing but your income before applying adjustments, exemptions, credits, and deductions.

Head of Household

A filing status claimed by taxpayers who are single but have qualifying dependent.

Household Employee

A person you pay to cook, clean, care for a dependent, etc. in your home. If you pay a household employee over a certain amount, you will be responsible for paying Social Security and Medicare taxes, and possibly Federal Unemployment taxes.


Individual Taxpayer Identification Number. A number used to identify foreign taxpayers to the IRS. Only taxpayers who do not have a Social Security Number must obtain an ITIN.

Investment Expenses

Investment Expenses are investment related expenses that can be deducted on the tax return.

Local Tax

A tax charged by a local government, such as a city or county.

Married Filing Jointly

A filing status claimed by married couples who wish to combine income and file a single tax return together in order to take advantage of various tax benefits.

Married Filing Separately

A filing status claimed by married couples who do not wish to file a joint return and agree to report their income separately.

Original Issue Discount (OID)

When a bond or note is issued at an amount lesser than its face value, the discount thus earned is the Original Issue Discount. A portion of this discount is annually recognized as taxable interest and is reported in Box 1 of Form 1099-OID.

Part-Year Resident

A person who lived in a particular state for only part of the year but must file a state income tax return there.


Personal Identification Number. A five digit number used to securely "sign" an electronically submitted, or e-filed, tax return.

Qualifying Widow(er)

A filing status claimed by a taxpayer whose spouse has died during the tax year. This status entitles the taxpayer to the tax rates and benefits of a joint return. If a widow(er) has dependents and does not remarry, that person may be allowed to claim Qualifying Widow(er) status for 2 more years.


Money awarded for educational purposes. Scholarship funds used to pay for qualified expenses such as tuition, required fees, books, and supplies are generally considered nontaxable income.


A filing status claimed by those who are unmarried, divorced, or legally separated and who do not qualify for Head of Household status.

Taxable Income

Your Adjusted Gross Income reduced by all applicable exemptions, credits, and deductions. The amount of income that is subjected to Federal and State tax.

Tax Exempt Interest

This is the amount of interest income that is not subjected to Federal Income Tax.

Unearned Income

Income from investments, such as interest, dividends and capital gains.


Money held back from your wages each payday to pay your income and Social Security taxes for the year.