Federal Individual Income Tax Terms: An Explanation (CRS Report for Congress)
Premium Purchase PDF for $24.95 (20 pages)
add to cart or
subscribe for unlimited access
Pro Premium subscribers have free access to our full library of CRS reports.
Subscribe today, or
request a demo to learn more.
| Release Date |
Revised July 28, 2022 |
| Report Number |
RL30110 |
| Report Type |
Report |
| Authors |
Mark P. Keightley, Specialist in Economics; Jeffrey M. Stupak, Research Assistant |
| Source Agency |
Congressional Research Service |
| Older Revisions |
-
Premium Revised Feb. 4, 2021 (17 pages, $24.95)
add
-
Premium Revised May 31, 2017 (13 pages, $24.95)
add
-
Premium Revised May 1, 2017 (13 pages, $24.95)
add
-
Premium Revised July 22, 2014 (13 pages, $24.95)
add
-
Premium June 20, 2006 (9 pages, $24.95)
add
|
Summary:
Described in this report are the terms most commonly used when discussing the federal individual
income tax. Most of these tax terms are explained in the order that they occur in the process of
determining one’s income tax on the Form 1040. Total income is the sum total of all income
required to be reported for tax purposes before adjustments to income are made for special types
of expenses which Congress has determined should be considered in calculating gross income.
These adjustments function like deductions, except that unlike deductions, adjustments are
calculated in arriving at adjusted gross income, and thus can be claimed by all taxpayers, not just
those who itemize deductions. An exclusion from income refers to an item specifically excluded
from determination of gross income.
Adjusted gross income (AGI) equals gross income less qualifying adjustments to income. It is the
income measurement before deductions and personal exemptions are taken into account.
Deductions from adjusted gross income are allowed for certain types of expenditures for which
income taxation is deemed inappropriate or inadvisable. Deductions function like adjustments and
exclusions in their effect on tax liability. In addition to the standard deduction, an additional
standard deduction amount is available to certain individuals, for example the blind or elderly.
Personal exemptions are allowed for the taxpayer, his or her spouse, and each dependent.
Exemptions affect tax liability like deductions, adjustments to income, and exclusions.
Taxable income is adjusted gross income reduced by either the standard deduction (plus the
additional standard deduction in some cases) or itemized deductions along with personal
exemptions. Taxable income is the base to which the income tax rates are applied to calculate
income tax liability. Tax liability is calculated by applying the marginal tax rate and schedule to
taxable income. Tax credits are then subtracted from gross tax liability to arrive at a taxpayer’s
final tax liability. Hence, tax credits reduce tax liability directly, on a dollar for dollar basis. Tax
credits are available to all qualifying taxpayers, whether they itemize deductions or not. Total tax
liability is the amount of federal income tax owed by the taxpayer to the federal government.
When a taxpayer’s final tax liability exceeds federal taxes withheld, estimated quarterly taxes
paid, and certain other credits, then the taxpayer has taxes due and must pay the federal
government additional federal income taxes to cover the shortfall. A refund is a payment by the
federal government to a taxpayer whose withheld taxes and/or estimated tax payments or
refundable credits exceeded his final tax liability.
A copy of the 2016 IRS Form 1040 is included at the end of this report.
This report will be updated as warranted by legislative events.
