Tax Planning

Household income is almost all types of income brought into your home by you, your family members, and any others who live with you. It can be earned or unearned income. Household income can be calculated in a few different ways, depending on which elements of it matter for formulas used by a particular agency or program. Several government programs rely on household income for determining eligibility for benefits and tax credits, both at the federal and state level.

A dependent is a person who relies on you for financial support, either because they’re a child, or because they’re an older relative who is unable to support themselves. The IRS recognizes two types of dependents: qualifying children and qualifying relatives.

The FICA (Federal Insurance Contributions Act) tax, also commonly called payroll or withholding tax, is money collected from you and your employer to pay for services such as old-age, survivors, and disability insurances (OASDI). It also covers Medicare.

A tax you pay directly to the government is known as a direct tax. For example, federal income tax is a common direct tax. The amount of income tax you pay depends on how much you earn, whether you’re single or married, whether you have children or other dependents, and other factors. Direct taxes must be paid by the person or entity that incurred them, unlike indirect taxes, which can be passed on to others. 

A tax base is the total amount of property, consumption, assets, transactions, income, or other sort of economic activity that is subject to taxation by an authority, such as the government. While a narrow tax base is considered to be non-neutral and inefficient, a broad tax base is known for reducing tax administration costs, allowing for more revenue to be raised at lower rates.

Back taxes are taxes that weren’t paid at the time they were due, typically from a prior year. You can owe back taxes at the federal, state, or local level, and you can owe them for a number of reasons. Many people owe back taxes because they didn’t have enough money withheld for taxes from their paychecks throughout the year. Some people may also owe because they were unaware that unemployment benefits are taxable most years, and didn’t have money automatically withheld.

Form 1099-G, officially titled Certain Government Payments, is a type of 1099 form that’s used to report some types of income you receive from the government—the “G” stands for government. One of the most common reasons for receiving a 1099-G is that you received jobless compensation. Another scenario where you could receive Form 1099-G is when you received a state or local tax refund, credit, or offset.

IRS Form 8862 (“Information To Claim Certain Credits After Disallowance”) must be included with your tax return if you have previously been denied the earned income tax credit (EITC), child tax credit, additional tax credit, credit for other dependents, or American opportunity tax credit. Filing this form will allow you to once again claim any of these credits.

The IRS assigns Employer Identification Numbers (EINs) to businesses, usually when they are newly established. EINs serve much the same function for businesses as Social Security numbers do for individuals—namely, to provide a means of easy identification and distinction from other businesses for tax and other purposes.