It is important to understand your paycheck and the various factors that influence it (as seen below). Taxes collected by the government, such as local, state, federal, Medicare, and social security all have an impact on both your gross and net income. Your gross income is your total income before taxes and other deductions, while, net income is the amount of money you have left to spend after taxes and other deductions.
Filing Your Taxes
Filing your taxes is the process of sending a report to the government on your income and activities to determine how much you owe in income taxes. In preparation for filing your taxes, you may need to determine your taxable income. Taxable income is the amount of income used to calculate how much you owe in income taxes each year and can be determined by identifying any applicable deductions, exemptions, or credits, and filling out the necessary documents needed to file.
Deductions are reductions in taxable income based on your behavior (think: giving to charity) that results in lower income taxes.
An exemption is a tax-related concept that reduces taxable income.
Tax credits are specific tax benefits that reduce the money you owe in taxes.
A refund is the amount of money you get back from the government if you pay more than you owe in taxes.
The IRS has partnered with several tax companies under the Free File Alliance to provide free tax-filing for individuals who make under $66,000 a year. For more information, visit https://freefilealliance.org/.
In addition to your net income, you may receive some employer-related benefits. Here are a few examples.