Glossary

The refundable portion of the Child Tax Credit. If your Child Tax Credit is larger than the tax you owe, the ACTC can pay part of the difference back to you (up to $1,700 per child for 2026), limited to 15% of earned income over $2,500.

The single number Social Security feeds into the benefit formula. It is the average of your 35 highest earning years, each indexed for wage growth, divided down to a monthly figure. A higher AIME produces a higher Primary Insurance Amount.

Your investment in an asset for tax purposes - usually what you paid plus improvements and certain costs. Capital gain equals sale price minus basis. A higher basis means a smaller taxable gain.

The dollar thresholds that split your AIME into brackets in the Social Security formula. For 2026, 90% applies to the first $1,286, 32% to the next slice, and 15% above the second bend point. The result is your Primary Insurance Amount.

Profit from selling an asset (stocks, a home, a fund) for more than your basis. Held one year or less it is a short-term gain taxed as ordinary income; held longer it is a long-term gain taxed at preferential rates.

The annual increase the Social Security Administration applies to benefits to keep up with inflation. It is tied to the CPI-W and announced each October for the following January, so your monthly check rises automatically.

A nonrefundable $500 credit for dependents who do not qualify for the Child Tax Credit - for example a child 17 or older, or a qualifying relative you support. It phases out at the same income thresholds as the CTC.

A federal tax credit of up to $2,200 per qualifying child under 17 for 2026. It first reduces the tax you owe dollar-for-dollar; any unused portion may flow into the refundable Additional Child Tax Credit.

The bonus Social Security adds for each month you wait to claim past Full Retirement Age, up to age 70. It works out to about 8% more per full year, permanently raising your monthly benefit.

A qualifying child or qualifying relative you can claim on a tax return. Children under 17 generally drive the Child Tax Credit; older children and other dependents may qualify for the $500 Credit for Other Dependents.

Wages, salary, tips, and net self-employment income - money you work for, as opposed to interest, dividends, or capital gains. It sets eligibility for the EITC and the refundable part of the Child Tax Credit.

Your total tax divided by your total income - the single percentage that describes your real tax burden. It is always lower than your top marginal rate because only the income in the top bracket is taxed at that rate.

A refundable credit for low-to-moderate-income workers, larger for families with children. It rises with earned income up to a peak, then phases out. Because it is refundable, it can produce a refund larger than the tax you paid.

The payroll tax that funds Social Security and Medicare - 6.2% for Social Security (up to the annual wage cap) plus 1.45% for Medicare, matched by your employer. Your covered wages build the earnings record behind your future benefit.

The category that sets your standard deduction, tax brackets, and credit phase-outs: single, married filing jointly, married filing separately, head of household, or qualifying surviving spouse. It changes nearly every number on a return.

The income guideline HHS publishes each year that determines eligibility for many benefit programs, including Medicaid and marketplace subsidies. Eligibility is often stated as a percentage of FPL for your household size.

The age at which you receive 100% of your Social Security benefit - between 66 and 67 depending on your birth year. Claiming earlier permanently reduces the benefit; waiting past FRA earns delayed retirement credits.

A filing status for an unmarried taxpayer who pays more than half the cost of keeping up a home for a qualifying dependent. It offers a larger standard deduction and wider brackets than filing single.

Gains on assets held more than one year, taxed at the preferential 0%, 15%, or 20% rates depending on your taxable income. They stack on top of ordinary income when determining which rate bracket applies.

Adjusted Gross Income with certain deductions added back. It is the income measure that drives many phase-outs and surcharges, including the Net Investment Income Tax and Medicare IRMAA.

The rate applied to your next dollar of income - your top bracket. Because brackets are progressive, only the income above each threshold is taxed at the higher rate, so your marginal rate exceeds your effective rate.

A joint federal-state program (run by CMS under HHS) that provides health coverage to low-income individuals and families. Eligibility is set by income relative to the Federal Poverty Level and varies by state.

An income-based surcharge added to your Medicare Part B and Part D premiums when your MAGI from two years earlier crosses set thresholds. Higher income tiers pay a higher monthly premium.

A 3.8% tax on net investment income (capital gains, dividends, interest, rents) once your MAGI exceeds $200,000 single or $250,000 married filing jointly. It stacks on top of the regular capital gains tax.

Income taxed at the regular progressive brackets - wages, interest, short-term gains, and most retirement withdrawals. It is taxed differently from long-term capital gains and qualified dividends, which get preferential rates.

Your Social Security benefit at Full Retirement Age, computed by applying the bend-point percentages to your AIME. Every claiming-age adjustment - early reduction or delayed credit - is figured from the PIA.

A child who meets the IRS relationship, age, residency, and support tests, letting you claim the Child Tax Credit, EITC, and other benefits. For the Child Tax Credit the child must be under 17 at year end.

The deadline for taking your first Required Minimum Distribution - April 1 of the year after you reach the RMD start age. Each later year's RMD is then due by December 31.

The minimum amount you must withdraw each year from a traditional IRA or 401(k) once you reach the RMD start age (73 or 75 under current law). It equals your prior-year-end balance divided by an IRS life-expectancy divisor.

An IRA or 401(k) funded with after-tax dollars; qualified withdrawals are tax-free. Roth IRAs - and, since 2024, Roth 401(k)s - have no Required Minimum Distributions during the original owner's lifetime.

The rule that lets you exclude up to $250,000 of gain ($500,000 married filing jointly) when you sell your main home, if you owned and lived in it at least 2 of the last 5 years. Gain above the exclusion is taxed as a capital gain.

A 2022 law that raised the RMD start age to 73 (and to 75 for those born in 1960 or later), cut the penalty for a missed RMD from 50% to 25% (10% if corrected promptly), and ended lifetime RMDs from Roth 401(k)s starting in 2024.

Gains on assets held one year or less, taxed at your ordinary-income rates rather than the preferential long-term rates. Holding one extra day past a year can move a gain into the lower long-term brackets.

The federal food-assistance program, formerly food stamps, run by USDA and administered by states. Eligibility is based on household income and size relative to the Federal Poverty Level.

The work credits that qualify you for Social Security. You earn up to four per year based on covered wages, and you generally need 40 credits (about 10 years of work) to be eligible for a retirement benefit.

A needs-based monthly payment from the Social Security Administration for people who are aged, blind, or disabled and have limited income and resources. It is separate from Social Security retirement benefits and funded by general tax revenue.

The flat amount you can subtract from income instead of itemizing. It varies by filing status and rises each year with inflation. Most taxpayers take it rather than tracking individual deductions.

The income left after subtracting the standard or itemized deduction (and certain adjustments) from your gross income. It is the figure the tax brackets are applied to and the one that sets your capital gains rate.

The IRS table of life-expectancy divisors used to compute most owners' Required Minimum Distributions. You divide your prior-year-end balance by the divisor for your age that year. A separate table applies if your sole beneficiary is a much-younger spouse.

Selling a security at a loss and buying the same or a substantially identical one within 30 days before or after. The IRS disallows the loss for that sale and adds it to the basis of the replacement shares.

The income tax your employer takes out of each paycheck, set by the Form W-4 you file. Withhold too little and you owe at tax time; too much and you get a refund. Adjusting the W-4 changes your take-home pay.