Financial Glossary
Understand tax, payroll, retirement, and investment terms with our comprehensive glossary of 50+ financial definitions.
Tax Terms
FICA
Federal Insurance Contributions Act tax. A payroll tax that funds Social Security (6.2%) and Medicare (1.45%), split between employer and employee.
→Learn more about FICAAGI (Adjusted Gross Income)
Your gross income minus certain adjustments like student loan interest, retirement contributions, and alimony payments. Used to determine tax eligibility.
Tax Bracket
Income ranges taxed at different rates. The US uses a progressive system where higher portions of income are taxed at higher rates.
→View 2026 tax bracketsStandard Deduction
A fixed dollar amount that reduces your taxable income. For 2026, it's $14,600 for singles and $29,200 for married couples filing jointly.
→Standard vs ItemizedItemized Deduction
Individual deductions you list on your tax return instead of taking the standard deduction. Includes mortgage interest, charitable donations, and state taxes.
→Which should you choose?Capital Gains
Profit from selling an asset like stocks or real estate. Short-term gains (held < 1 year) are taxed as ordinary income; long-term gains have lower rates.
→Capital gains guideCapital Loss
Loss from selling an asset for less than its purchase price. Can offset capital gains and up to $3,000 of ordinary income per year.
Tax Credit
A dollar-for-dollar reduction in your tax bill. More valuable than deductions. Examples: Child Tax Credit, Earned Income Credit, Education Credits.
Tax Deduction
Reduces your taxable income before calculating tax owed. The value depends on your tax bracket. Examples: mortgage interest, charitable donations.
Marginal Tax Rate
The tax rate applied to your last dollar of income. In the US, this is your highest tax bracket rate, not the rate on all your income.
Effective Tax Rate
The actual percentage of your income paid in taxes. Calculated as total tax divided by total income. Usually lower than your marginal rate.
Withholding
Money your employer deducts from each paycheck to pay your estimated taxes. Based on your W-4 form. Can result in a refund or amount owed.
→W-4 form guideTax Refund
Money returned to you when you've overpaid taxes through withholding or estimated payments. Not a bonus—攊t's your own money returned.
Taxable Income
Your AGI minus deductions. This is the amount actually subject to income tax. Can be significantly less than your total earnings.
Dependent
A qualifying child or relative who relies on you for financial support. Claiming dependents can provide tax credits and deductions.
Filing Status
Determines your tax rates and standard deduction. Options: Single, Married Filing Jointly, Married Filing Separately, Head of Household, Qualifying Widow(er).
→Filing status guidePayroll Terms
Gross Pay
Total earnings before any deductions. For hourly workers: hours worked 脳 hourly rate. For salaried workers: annual salary 梅 pay periods.
Net Pay
Your take-home pay after all deductions. Gross pay minus taxes, benefits, and other withholdings equals net pay.
→Calculate your net payW-4 Form
Employee's Withholding Certificate. Tells your employer how much federal income tax to withhold from your paycheck.
→How to fill W-4Paystub
Document showing earnings and deductions for a pay period. Includes gross pay, taxes withheld, benefits, and net pay.
→Read your paystubOvertime
Hours worked beyond 40 per week. Typically paid at 1.5脳 your regular rate (time-and-a-half). Some states have daily overtime rules.
W-2 Form
Wage and Tax Statement. Annual form from your employer showing total earnings and taxes withheld. Required for filing your tax return.
1099 Form
Reports income from sources other than employers. Common types: 1099-NEC (freelance), 1099-INT (interest), 1099-DIV (dividends).
Pre-Tax Deduction
Money taken from your paycheck before taxes are calculated. Reduces taxable income. Examples: 401k contributions, health insurance premiums.
→Deductions explainedPost-Tax Deduction
Money taken from your paycheck after taxes are calculated. Examples: Roth 401k contributions, life insurance, charitable donations.
Direct Deposit
Electronic transfer of your paycheck directly into your bank account. Faster and more secure than paper checks.
Pay Period
The time frame for which you're paid. Common types: weekly, bi-weekly, semi-monthly, monthly. Affects paycheck size and frequency.
Bonus
Extra compensation beyond regular salary. May be taxed at a flat 22% federal rate (supplemental income) or aggregated with regular wages.
Commission
Performance-based pay, typically a percentage of sales. Taxed as regular income. Can make budgeting challenging due to variable income.
Social Security Tax
6.2% payroll tax on wages up to the wage base limit ($184,500 in 2026). Both employer and employee pay this amount.
→FICA explainedMedicare Tax
1.45% payroll tax on all wages, split between employer and employee. High earners pay an additional 0.9% Medicare surtax.
Retirement Terms
401(k)
Employer-sponsored retirement account. Contributions are pre-tax (traditional) or post-tax (Roth). 2024 contribution limit: $23,000 ($30,500 if 50+).
→401k vs Roth IRARoth IRA
Individual retirement account with post-tax contributions. Earnings grow tax-free and qualified withdrawals are tax-free in retirement.
→Compare retirement accountsTraditional IRA
Individual retirement account with pre-tax contributions. May be tax-deductible. Withdrawals in retirement are taxed as ordinary income.
Social Security
Federal program providing retirement, disability, and survivor benefits. Funded by FICA taxes. Full retirement age is 67 for those born after 1960.
Pension
Employer-funded retirement plan that pays a monthly benefit based on salary and years of service. Less common today; mostly in government jobs.
Employer Match
Free money your employer contributes to your 401k based on your contributions. Common formula: 50% match up to 6% of salary.
Vesting
The process of earning full ownership of employer contributions. Your own contributions are always 100% vested immediately.
RMD (Required Minimum Distribution)
Minimum amount you must withdraw from retirement accounts annually starting at age 73. Failure to withdraw results in a 25% penalty.
Catch-Up Contribution
Extra retirement contributions allowed for those 50 and older. 401k: additional $7,500; IRA: additional $1,000 in 2024.
Early Withdrawal Penalty
10% penalty on retirement withdrawals before age 59½, in addition to regular income tax. Some exceptions apply (first home, education, disability).
Roth Conversion
Moving money from a traditional IRA or 401k to a Roth account. You pay taxes now but future withdrawals are tax-free.
Target-Date Fund
Mutual fund that automatically adjusts its asset allocation based on your expected retirement year. Becomes more conservative over time.
Investment Terms
Stock Options
Right to buy company stock at a set price (strike price). If stock price rises above strike price, you profit from the difference.
ISO (Incentive Stock Option)
Employee stock option with tax advantages. No tax at grant or exercise if held properly. Gains taxed as capital gains when sold.
NSO (Non-Qualified Stock Option)
Stock option without special tax treatment. Taxed as ordinary income at exercise on the difference between fair market value and strike price.
Dividend
Payment from a company to shareholders from profits. Qualified dividends are taxed at lower capital gains rates; ordinary dividends at regular rates.
Capital Loss Carryover
When capital losses exceed gains plus the $3,000 annual deduction limit, unused losses carry forward to future tax years indefinitely.
Cost Basis
Original purchase price of an asset, used to calculate capital gains or losses when sold. Includes purchase price plus commissions and fees.
ETF (Exchange-Traded Fund)
Investment fund traded on stock exchanges. Holds assets like stocks, bonds, or commodities. Generally more tax-efficient than mutual funds.
Mutual Fund
Pooled investment vehicle managed by professionals. May generate taxable capital gains distributions even if you don't sell shares.
HSA (Health Savings Account)
Triple tax-advantaged account for those with high-deductible health plans. Contributions are pre-tax, grow tax-free, and withdrawals for medical expenses are tax-free.
FSA (Flexible Spending Account)
Pre-tax account for healthcare expenses. Use it or lose it—攆unds must be spent within the plan year (with some exceptions and carryover options).
Wash Sale
Selling a security at a loss and repurchasing it within 30 days. The loss is disallowed for tax purposes and added to the new cost basis.
Tax-Loss Harvesting
Selling investments at a loss to offset capital gains. Can reduce taxes, but watch for wash sale rules. Best done strategically at year-end.