2025 Tax Year Reference
Plain-English definitions for the tax terminology used on Form 1040, in IRS publications, and throughout our federal refund calculator. Organized A–Z for quick reference.
Not sure what a term on your W-2 or tax software means? Use this glossary as your quick reference. For a step-by-step walkthrough of how these concepts fit together to produce your refund, see the Federal Tax Refund Guide. To estimate your own refund using these concepts, visit the free calculator.
Adjustments to income that are subtracted from your gross income to arrive at your Adjusted Gross Income (AGI). They are called "above-the-line" because they appear on the front of Form 1040 — above the line where AGI is calculated. Common examples include traditional IRA contributions, student loan interest, HSA contributions, self-employed health insurance premiums, and educator expenses. These deductions are available whether or not you itemize.
The refundable portion of the Child Tax Credit. For 2025, the ACTC allows qualifying families to receive up to $1,700 per qualifying child as a refund even if their tax liability is zero. The ACTC is calculated on Schedule 8812 and is subject to the IRS PATH Act hold — meaning refunds containing the ACTC cannot be issued before mid-February of the filing season.
Your total gross income minus specific "above-the-line" adjustments listed on Schedule 1 of Form 1040. AGI is one of the most important numbers on your tax return because it determines eligibility for many deductions and credits, most of which phase out as AGI rises. For example, the deductibility of traditional IRA contributions, the AOTC, and the student loan interest deduction all depend on AGI thresholds. Your AGI appears on Line 11 of the 2025 Form 1040.
A credit of up to $2,500 per eligible student for qualified higher education expenses paid during the first four years of post-secondary education. The credit equals 100% of the first $2,000 in qualified expenses plus 25% of the next $2,000. Forty percent of the credit (up to $1,000) is refundable. For 2025, the AOTC phases out between $80,000–$90,000 AGI (single) and $160,000–$180,000 (MFJ). Eligible expenses include tuition, required fees, and course materials.
A mandatory 24% federal withholding applied to certain payments (dividends, interest, freelance income, etc.) when a taxpayer has failed to provide their correct Taxpayer Identification Number (TIN) to the payer, or when the IRS notifies the payer that the taxpayer is subject to backup withholding. If backup withholding was applied to your 1099 income, it appears in Box 4 of the form and counts toward your total tax withholding on Form 1040.
Profit from the sale of a capital asset (stock, real estate, cryptocurrency, collectibles, etc.). Short-term capital gains — from assets held one year or less — are taxed at your ordinary income tax rate (the same rates as your wages). Long-term capital gains — from assets held more than one year — are taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income. Most taxpayers in the 12% and 22% brackets pay 15% on long-term gains. Our refund calculator does not separately model capital gains; enter them as part of annual income for a rough estimate.
A credit of up to $2,000 per qualifying child under age 17 for the 2025 tax year. The child must have a valid Social Security number and meet dependency, residency, and relationship tests. The credit is partially refundable through the Additional Child Tax Credit (up to $1,700 per child). The credit phases out by $50 for every $1,000 of AGI above $200,000 (single/HOH) or $400,000 (MFJ). Up to $500 of the credit is available for non-child dependents as the "Other Dependent Credit."
A person — typically a child or qualifying relative — whom you support and can claim on your tax return. Claiming a dependent can unlock several valuable tax benefits, including the Child Tax Credit, the Child and Dependent Care Credit, the Earned Income Tax Credit, and Head of Household filing status. The IRS uses two categories: a Qualifying Child (must meet age, residency, relationship, and support tests) and a Qualifying Relative (a broader category with a gross income test). See IRS Publication 501 for the detailed dependency rules.
A fully refundable federal tax credit for low-to-moderate-income workers, particularly those with children. For 2025, the maximum EITC ranges from approximately $632 (no qualifying children) to $7,830 (three or more qualifying children). The credit requires earned income (wages, salaries, self-employment income) and has both earned income and AGI limits. Investment income must be $11,600 or less. By law (PATH Act), refunds containing the EITC cannot be released before mid-February. The EITC is one of the most valuable credits available and is frequently unclaimed.
The actual average percentage of your total income paid in federal income taxes, calculated by dividing your total tax liability by your total income. Because the U.S. uses a progressive bracket system, your effective rate is always lower than your marginal (highest) bracket rate. For example, a single filer with $65,000 in gross income and $47,000 in taxable income pays $5,397 in federal tax — an effective rate of about 8.3% on gross income, even though their marginal rate is 12%.
Quarterly prepayments of federal income tax made by individuals who have income that is not subject to withholding — typically self-employed workers, freelancers, investors, and retirees with significant non-Social-Security income. For 2025 income, estimated payments are generally due April 15, June 16, September 15, 2025, and January 15, 2026. Underpaying estimated taxes can trigger an IRS underpayment penalty, even if you pay the full balance when you file. Use IRS Form 1040-ES to calculate and submit quarterly payments.
One of five IRS categories that determines your standard deduction, applicable tax brackets, and eligibility for various credits: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Surviving Spouse. Filing status is determined by your marital and family situation on the last day of the tax year (December 31, 2025). Choosing the wrong status is one of the most common — and costly — tax filing errors. See IRS Publication 501 for the qualifying rules for each status.
The standard federal individual income tax return filed by U.S. taxpayers. For the 2025 tax year, you will file the 2025 Form 1040 during the 2026 filing season (by April 15, 2026, or October 15, 2026 with an extension). The form summarizes income, adjustments, deductions, credits, and tax owed or refunded. Most taxpayers who use tax software never see the raw form, but understanding it helps you understand what inputs affect your refund. Supporting schedules include Schedule A (itemized deductions), Schedule B (interest and dividends), Schedule C (self-employment income), and Schedule D (capital gains).
A series of IRS information returns reporting income paid to individuals outside of regular employment. Common variants include 1099-NEC (non-employee compensation from freelance or contract work), 1099-INT (bank interest), 1099-DIV (dividends), 1099-R (retirement distributions), 1099-SSA (Social Security benefits), and 1099-MISC (miscellaneous income, rent, prizes). Payers must send 1099s to both you and the IRS by January 31 of the filing year. All 1099 income is generally taxable and must be reported on your return.
The annual wage and tax statement your employer must send you by January 31 of each year. It reports your total wages (Box 1), Social Security wages (Box 3), Medicare wages (Box 5), federal income tax withheld (Box 2), state wages, and state income tax withheld. Box 2 is the key figure for your refund calculation — it is the total federal income tax your employer sent to the IRS on your behalf throughout the year. If you have multiple W-2s (from multiple employers), add all the amounts in Box 2 together to get your total withholding.
The form you give your employer that instructs them how much federal income tax to withhold from each paycheck. The current W-4 (revised in 2020) no longer uses "allowances" — instead it uses five steps including filing status, multiple jobs adjustment, dependent credits, and optional additional withholding. Completing your W-4 accurately is the primary way to control your year-end refund or balance due. You should submit a new W-4 after any major life change such as marriage, divorce, the birth of a child, or a significant income change.
Your total income from all sources before any deductions or adjustments. This includes wages, salaries, tips, self-employment income, interest, dividends, capital gains, rental income, alimony (pre-2019 agreements), gambling winnings, and other taxable income. Gross income is the starting point for your tax calculation; you then subtract above-the-line adjustments to reach AGI, and then subtract your deduction to reach taxable income. Note that some types of income — such as qualified gifts, inheritances, and municipal bond interest — are excluded from gross income.
A filing status available to unmarried taxpayers who paid more than half the cost of maintaining a home for a qualifying person (typically a child or dependent) for more than half the year. Head of Household provides a higher standard deduction ($22,500 for 2025 vs. $15,000 for Single) and more favorable tax brackets than filing as Single. To qualify, you must be considered unmarried on December 31, 2025, which includes legally single, divorced, or certain married taxpayers who lived apart from their spouse for the last six months of the year. See IRS Publication 501 for the qualifying tests.
A tax-advantaged savings account available to individuals enrolled in a High-Deductible Health Plan (HDHP). HSA contributions are deductible above-the-line (they reduce your AGI even if you don't itemize), grow tax-free, and are tax-free when withdrawn for qualified medical expenses — making them triple tax-advantaged. For 2025, the contribution limit is $4,300 for self-only HDHP coverage and $8,550 for family coverage. Those age 55 and older can contribute an additional $1,000. Unused HSA balances roll over year to year with no "use it or lose it" rule.
A tax-advantaged personal retirement savings account. Traditional IRA contributions may be tax-deductible (reducing your AGI), with taxes paid when you withdraw money in retirement. Roth IRA contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free. For 2025, you can contribute up to $7,000 ($8,000 if age 50 or older) across all IRAs combined. Traditional IRA deductibility phases out for those covered by a workplace retirement plan above certain AGI thresholds ($79,000–$89,000 single; $126,000–$146,000 MFJ for 2025).
Specific, eligible expenses reported on Schedule A of Form 1040 that you can subtract from AGI instead of taking the standard deduction. Common itemizable expenses include mortgage interest, state and local taxes (SALT, capped at $10,000), charitable contributions, and unreimbursed medical expenses exceeding 7.5% of AGI. You should itemize only if your total eligible expenses exceed the standard deduction for your filing status ($15,000 single / $30,000 MFJ in 2025). About 13% of taxpayers itemize; the rest take the standard deduction.
The tax rate applied to the last (highest) dollar of your taxable income — also called your "tax bracket." Under the U.S. progressive system, only the dollars that fall within a specific bracket are taxed at that rate; lower portions of income are taxed at lower rates. For example, a single filer with $55,000 in taxable income falls in the 22% bracket, but their effective rate is much lower because the first $12,150 was taxed at 10% and the next $37,250 at 12%. Knowing your marginal rate helps you assess the value of additional deductions or contributions.
An additional 3.8% Medicare surtax on the lesser of your net investment income (interest, dividends, capital gains, rental income, royalties) or the amount by which your modified AGI exceeds the threshold: $200,000 (single/HOH), $250,000 (MFJ), or $125,000 (married filing separately). The NIIT does not apply to earned income such as wages or self-employment income. It is calculated on Form 8960 and added to your regular income tax liability. High-income investors should factor the NIIT into tax planning decisions about selling investments.
A deduction introduced by the Tax Cuts and Jobs Act (TCJA) that allows eligible self-employed individuals and owners of pass-through businesses (sole proprietorships, partnerships, S-corps, certain LLCs) to deduct up to 20% of qualified business income from their taxable income. The deduction is claimed on Form 8995 and is an above-the-line deduction available regardless of whether you itemize. It is subject to W-2 wage limitations and property-based limitations at higher income levels. Certain service-based businesses (law, consulting, financial services) face additional restrictions and phase-outs. The QBI deduction is currently scheduled to expire after 2025 unless Congress acts to extend it.
Refundable credits can reduce your tax liability below zero — meaning the IRS will pay you the excess as a refund, even if you owe no tax at all. Examples include the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), and the refundable portion of the American Opportunity Tax Credit. Non-refundable credits can reduce your tax to zero but cannot generate a refund on their own. Examples include the Child and Dependent Care Credit, Lifetime Learning Credit, and Saver's Credit. When you have both types, non-refundable credits are applied first; then refundable credits are applied and any excess is paid to you.
The itemized deduction for state and local taxes paid, including state income taxes (or sales taxes, whichever is higher) and real estate/property taxes. Since the Tax Cuts and Jobs Act of 2017, the SALT deduction has been capped at $10,000 per return ($5,000 for married filing separately). This cap disproportionately affects taxpayers in high-tax states such as California, New York, New Jersey, Connecticut, and Illinois. The cap is currently scheduled to expire after 2025, though its future beyond that is subject to Congressional action.
The Social Security and Medicare taxes that self-employed individuals must pay on net self-employment income. Employees split these taxes with their employer (each paying 7.65%); self-employed individuals pay both the employee and employer portions — a combined rate of 15.3% (12.4% Social Security + 2.9% Medicare) on net self-employment income up to $176,100, plus 2.9% Medicare on amounts above that. Self-employed individuals can deduct half of the SE tax as an above-the-line adjustment to income. The self-employment tax is calculated on Schedule SE.
A flat dollar amount set by the IRS each year that reduces your taxable income when you do not itemize. For 2025, the standard deduction is $15,000 (single), $30,000 (married filing jointly), $15,000 (married filing separately), and $22,500 (head of household). An additional standard deduction amount is available for taxpayers who are 65 or older or blind. About 87% of taxpayers take the standard deduction rather than itemizing. It is adjusted annually for inflation by the IRS.
A range of taxable income taxed at a specific rate within the U.S. progressive tax system. For 2025, the seven federal brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, each with different income thresholds depending on your filing status. The term "being in the 22% bracket" means the top portion of your income falls in that range — not that all your income is taxed at 22%. Only the dollars within each bracket are taxed at that bracket's rate. See the full 2025 tax bracket tables for exact thresholds by filing status.
The total amount of federal income tax you legally owe for the tax year, after applying all deductions and credits. This is the number compared against your total withholding and estimated payments to determine your refund or balance due. Tax liability is not the same as taxes withheld — it is the final calculated amount owed based on your actual income, filing status, deductions, and credits for the entire year. Your tax liability appears on Line 24 of the 2025 Form 1040.
The amount of income subject to federal income tax, calculated as AGI minus either your standard deduction or itemized deductions (whichever is larger). Taxable income is the base on which the federal tax brackets are applied. For example, a single filer with a $62,000 AGI who takes the $15,000 standard deduction has a taxable income of $47,000. Taxable income can also be reduced by the Qualified Business Income (QBI) deduction if applicable. Your taxable income appears on Line 15 of the 2025 Form 1040.
An IRS penalty charged when you have not paid enough federal income tax throughout the year via withholding and/or estimated tax payments. You will generally owe the penalty if you paid less than 90% of the current year's tax liability or less than 100% of the prior year's tax liability (110% if prior year AGI exceeded $150,000) — whichever is smaller. The penalty is calculated quarterly on the underpaid amount at the federal short-term interest rate plus 3%. You can avoid the penalty by ensuring sufficient withholding or making timely quarterly estimated payments. Use IRS Form 2210 to calculate or request a waiver.
The amount of federal income tax your employer deducts from each paycheck and remits to the IRS on your behalf throughout the year. It is reported in Box 2 of your W-2 at year-end. Withholding is based on your Form W-4 elections and the IRS withholding tables. The sum of all federal income tax withheld from all your sources (W-2 wages, 1099 backup withholding, pension distributions, etc.) is compared against your actual tax liability when you file to determine your refund or balance due. Withholding and estimated tax payments both count as "tax paid" on Line 25 of Form 1040.
Now that you understand the key terms, put them to use:
This glossary is for educational purposes only. Tax law is complex and subject to change. Always verify with current IRS publications or a qualified tax professional before making filing decisions.