Tax Glossary
Plain-English definitions for the U.S. federal tax terms you will see in our calculators, guides, and articles. Updated for tax year 2026.
24 of 24 terms
- Adjusted Gross Income (AGI)
- Gross income minus above-the-line adjustments.
- AGI equals your gross income (wages, self-employment, interest, dividends, capital gains, etc.) less specific adjustments like deductible IRA contributions, HSA contributions, student-loan interest, and 1/2 of self-employment tax. AGI is the starting point for most deductions, credits, and phase-outs.
- Related: Modified Adjusted Gross Income, Taxable Income
- Tax Bracket
- An income range taxed at a specific marginal rate.
- U.S. federal income tax is progressive — each bracket only taxes the slice of income that falls inside it. Moving into a higher bracket never reduces your take-home; only the dollars above the threshold are taxed at the higher rate.
- Related: Marginal Tax Rate, Effective Tax Rate
- Marginal Tax Rate
- The rate paid on your next dollar of income.
- Your marginal rate is the bracket your last dollar falls into. It drives decisions about deferring income, accelerating deductions, and Roth conversions.
- Related: Tax Bracket, Effective Tax Rate
- Effective Tax Rate
- Total tax owed divided by total income.
- Always lower than your marginal rate in a progressive system. Use it to compare year-over-year tax burden or different filing strategies.
- Related: Marginal Tax Rate
- Standard Deduction
- Fixed deduction that lowers taxable income.
- For 2026 the standard deduction is $16,100 single / $32,200 MFJ / $24,150 head of household. Take it unless itemized deductions exceed the standard amount.
- Related: Itemized Deductions
- Itemized Deductions
- Specific expenses you list instead of the standard deduction.
- Includes state + local taxes (capped at $10,000), mortgage interest, charitable contributions, and unreimbursed medical above 7.5% of AGI. Itemize only when the total exceeds the standard deduction.
- Related: Standard Deduction
- Capital Gains
- Profit from selling an investment.
- Short-term gains (held ≤1 year) are taxed as ordinary income. Long-term gains (held >1 year) are taxed at 0%, 15%, or 20% based on income, plus 3.8% NIIT above MAGI thresholds ($200k single / $250k MFJ).
- Related: Net Investment Income Tax (NIIT), Cost Basis
- Cost Basis
- Your purchase price for tax accounting.
- Cost basis is what you paid for an asset plus commissions and reinvested dividends. Subtract it from the sale price to compute capital gain or loss.
- Related: Capital Gains
- Net Investment Income Tax (NIIT)
- 3.8% surtax on investment income for high earners.
- Applies to interest, dividends, capital gains, rental and royalty income for taxpayers with MAGI over $200,000 single / $250,000 MFJ.
- Related: Capital Gains
- Self-Employment Tax
- 15.3% Social Security + Medicare tax on net SE income.
- Sole proprietors, partners, and LLC members pay both halves of FICA on 92.35% of net earnings. Half is deductible above the line.
- Related: FICA, Schedule SE
- FICA
- Federal Insurance Contributions Act payroll taxes.
- 6.2% Social Security (up to the wage base — $184,500 in 2026) and 1.45% Medicare on all wages, plus an additional 0.9% Medicare for high earners over $200k single.
- Related: Self-Employment Tax
- Tax Withholding
- Tax deducted from pay before you receive it.
- Employers withhold federal and state tax based on Form W-4. Under-withholding can trigger estimated-tax penalties; over-withholding gives you a refund but is an interest-free loan to the government.
- Related: Estimated Taxes, W-4
- W-4
- Form telling your employer how much to withhold.
- Update it after marriage, a child, a side hustle, or major raises to keep withholding close to actual liability.
- Related: Tax Withholding
- Estimated Taxes
- Quarterly tax payments for income without withholding.
- Required when you'll owe $1,000+ at filing. Due April 15, June 15, September 15, and January 15. Use safe harbor (100%/110% of prior-year tax) to avoid penalty.
- Related: Self-Employment Tax
- Tax Refund
- Money returned when you overpaid during the year.
- Refund = total payments (withholding + estimates + refundable credits) minus actual tax liability.
- Related: Tax Withholding
- Tax Credit
- A dollar-for-dollar reduction of tax owed.
- Credits beat deductions — a $1,000 credit cuts your tax bill by $1,000, while a $1,000 deduction only saves $1,000 × your marginal rate. Refundable credits can produce a refund larger than what you paid in.
- Related: Tax Deduction
- Tax Deduction
- An amount subtracted from taxable income.
- Worth marginal-rate × deduction in tax savings. The standard deduction or itemized deductions reduce AGI to taxable income.
- Related: Tax Credit, Standard Deduction
- Filing Status
- Marital and household category that drives brackets.
- Five statuses: single, married filing jointly, married filing separately, head of household, qualifying surviving spouse. Status changes brackets, standard deduction, and credit phase-outs.
- Schedule SE
- Form computing self-employment tax.
- Calculates the 15.3% SE tax on Schedule C profit. Half flows to Schedule 1 as an above-the-line deduction.
- Related: Self-Employment Tax
- Modified Adjusted Gross Income
- AGI plus certain add-backs.
- Used for IRA deduction phase-outs, Roth contribution limits, NIIT, premium tax credit, and student-loan interest. Add-backs vary by purpose.
- Related: Adjusted Gross Income (AGI)
- Taxable Income
- Income subject to federal tax after deductions.
- AGI minus the standard or itemized deduction equals taxable income, which is then run through the bracket table.
- Related: Adjusted Gross Income (AGI)
- Qualified Business Income (QBI) Deduction
- Up to 20% deduction for pass-through business income.
- Section 199A allows owners of sole props, partnerships, S-corps and certain rentals to deduct up to 20% of QBI, subject to income thresholds and SSTB rules.
- Roth Conversion
- Moving pre-tax IRA dollars to a Roth IRA.
- Conversion amount is taxed as ordinary income in the year of the conversion but grows tax-free thereafter. Useful in low-income years or before RMDs begin.
- Related: Traditional IRA, Roth IRA
- Required Minimum Distribution (RMD)
- Mandatory annual withdrawal from pre-tax retirement accounts.
- Starts at age 73 (Secure 2.0). Calculated on prior-year December 31 balance divided by an IRS life-expectancy factor. Missing an RMD triggers a 25% penalty.
Need more depth? Read our methodology or the 2026 federal tax brackets.