Taxation Legal Terms and Definitions

Work Opportunity Credit and Welfare-to-Work Credit The work opportunity credit and the welfare-to-work credit are scheduled to expire for wages paid to individuals who began working for you after 2003. Self-Employment Tax The self-employment tax rate on net earnings remains the same for 2003. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insur­ance) and 2.9% for Medicare (hospital insurance). Federal income tax The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt. Estate and Gift Tax One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of their death. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent's entire estate, regardless of how it is disbursed. Limited Liability Company An LLC may be classified for Federal income tax purposes either as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832, Entity Classification Election, for more details. Income taxes Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes). Compulsory payroll tax An automatic tax collected from employers and employees to finance specific programs. Employee Works for an employer. Employers can control when, where, and how the employee performs the work. Dependency exemption Amount that taxpayers can claim for their eligible dependents. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Gross income Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment compensation and certain scholarships. It does not include welfare benefits and nontaxable Social Security benefits.

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	Did You Know?
	If you have employees, you are responsible for Federal Taxes If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold certain taxes from your employees pay checks. Employment taxes include the following. Federal income tax withholding Social Security and Medicare taxes Federal unemployment tax act (FUTA).