Earned income
Compensation for performing personal services. You must have earned income for a deductible IRA or to claim the earned income credit.
Tax Glossary
Earned income credit
A credit allowed to taxpayers with earned income or adjusted gross income (AGI) below certain thresholds.
Education IRA
See Coverdell Education Savings Account.
Electronic Federal Tax Payment System (EFTPS)
An online and phone tax payment system available 24 hours a day. For enrollment information, call 1-800-555-4477, or go to www.eftps.gov.
Estimated tax
Advance payment of current tax liability based either on wage withholdings or installment payments of your estimated tax liability. To avoid penalties, you generally must pay to the IRS either 90% of your final tax liability, or either 100% or 110% of the prior year’s tax liability, depending on your adjusted gross income.
Exemption
A fixed deduction allowed to every taxpayer, except those who may be claimed as a dependent by another person. Extra exemption deductions are allowed for a spouse on a joint return and for each qualifying dependent. A deduction of $3,400 is allowed for each exemption claimed on 2007 returns, but the deduction is phased out for certain high income individuals.
