Taxable Income. The final income amount used to calculate tax liability. Taxable income equals AGI less personal exemptions and the standard or itemized deductions.
Tax-After-Credits. A filer's calculated, final tax liability after all credits—such as the earned income tax credit, the child credit, the child and dependent care tax credit—have been applied. If this amount is less than taxes paid via withholding or estimated tax payments, it may be paid to the taxpayer as a refund.
Tax Arbitrage. Making money purely by taking advantage of differences in rates. The most common form of tax arbitrage is borrowing to buy preferred assets, even when there is no net saving, to lower one's tax bill.
Tax Burden. The total cost of taxation on a household or individual. The burden includes the costs of taxes paid both directly and indirectly. For example, besides the employee portion of payroll taxes, a worker may also bear the employer portion in the form of lower compensation.
Tax Credit. A reduction in tax liability for such specific expenses as childcare or retirement savings. Unlike deductions, which reduce taxable income, a tax credit reduces tax liability dollar for dollar. Nonrefundable credits cannot reduce tax liability below zero; with refundable credits, the amount of credit remaining after current tax liability is paid as a refund to the taxpayer.
Tax Expenditures. Revenue loss attributable to a provision of federal tax laws that allows special exclusion, exemption, or deduction from gross income or provides a special credit, preferential tax rate, or deferral of tax liability.
Tax Filers. Any individual, family, household, or entity that files a tax return. Tax filers differ from taxpayers since many tax filers have no tax liability and file to receive amounts withheld from their paychecks or refundable tax credits. (Note that the Urban-Brookings Tax Policy Center also includes nonfiling individuals, families, and households in its sample of "tax filing units"—that is, the groupings they would be in if they filed a tax return—to get a more complete picture of how taxes affect the entire population.)
Tax Filing Threshold. The level of taxable income at which a filing unit of a certain size and filing status begins paying tax before considering tax credits. The amount varies with filing status, allowable adjustments, deductions, and exemptions. Tax credits can further increase the amount of untaxed income.
Tax Filing Unit. A tax filing unit consists of an individual or married couple that would—if their income were above the filing thresholds—file an individual income tax return. The tax filing unit also includes any other persons who would be claimed as dependents on that tax return. For example, a single person who files a tax return for herself is one tax unit, as is a married couple with three children that files one tax return for the whole family. However, a family of three in which each parent files under the status of "married filing separate", and the working son or daughter files a tax return, is considered three tax units."
Tax Liability. The amount of total taxes owed after tax credits have been applied.
Tax Policy Center Microsimulation Model. The model developed by the Urban-Brookings Tax Policy Center to estimate how proposals affect revenue, the distribution of tax burdens, and incentives to work and save. It is based on data from the IRS Statistics of Income public use files and is very similar to the models used by the Treasury Department, the Joint Committee on Taxation, and the Congressional Budget Office.
Tax Shelter. Activity that is designed specifically to avoid or evade tax liability and that has no true net economic benefit (before consideration of tax savings).
TRA86 (Tax Reform Act). Revenue-neutral legislation passed in 1986 that simplified the tax code, lowered marginal tax rates, and closed corporate loopholes.
TRA97 (Taxpayer Relief Act). Tax legislation passed in 1997 that reduced capital gains tax rates, introduced the child credit, created education credits, raised the estate tax exemption level, created Roth IRAs, and increased the contribution limit for traditional IRAs.
TANF (Temporary Assistance for Needy Families). A grant program to states, enacted as part of PRWORA, that seeks to promote state flexibility; keep children in their own homes or homes of relatives; end parental dependence on welfare by promoting job preparation, work, and marriage; discourage pregnancy outside of marriage; and encourage formation and maintenance of two-parent families. (See PRWORA.)
Temporary Legal Resident. A holder of a work, student, or other visa.
TRIM3. A micro-simulation model of transfer programs (cash and in-kind), health insurance programs, and selected taxes, developed by the Urban Institute and now in its third iteration. TRIM corrects for the under-reporting of transfer benefits in survey data, allows estimation of program participation rates, and calculates the distributional and other effects of changes in government programs at the individual, family, state, and national levels.
