Tax Terms Glossary
Understanding tax terminology is essential for navigating the Big Beautiful Bill. This glossary provides clear explanations of key terms and concepts.
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A
- Adjusted Gross Income (AGI)
- Your total income minus specific deductions (like QBI deduction) but before the standard or itemized deduction. This is a key figure used to determine eligibility for many tax benefits.
B
- Big Beautiful Bill
-
The One Big Beautiful Bill Act (H.R.1), enacted federal legislation that provides significant tax relief through tip and overtime income exclusions, enhanced deductions, and improved credits.
Now Law
C
- Child Tax Credit
- A tax credit for qualifying children under 17. Under the Big Beautiful Bill, the credit is enhanced to $2,500 per child from 2025-2028, then $2,000 permanently.
D
- Deduction
- An amount that reduces your taxable income. The tax savings from a deduction depend on your tax bracket (marginal tax rate).
E
- Effective Tax Rate
- Your total tax divided by your total income, expressed as a percentage. This shows what percentage of your income goes to taxes.
- Enhanced Deduction
- Under the Big Beautiful Bill, standard deductions are enhanced beyond current law amounts. Seniors (65+) receive additional enhanced deductions.
F
- Filing Status
- Your tax filing category: Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Widow(er). This determines your tax brackets and standard deduction amount.
G
- Gross Income
- All income from all sources before any deductions or exclusions. Under the Big Beautiful Bill, tip and overtime income is excluded from gross income.
I
- Income Exclusion
-
Income that is completely excluded from taxation. The Big Beautiful Bill provides two major exclusions:
- Tip Income: All tips received by service workers
- Overtime Income: All overtime compensation
- Itemized Deductions
- Specific deductions you can claim instead of the standard deduction, including state and local taxes (SALT), mortgage interest, charitable contributions, and medical expenses.
O
- Overtime Income
-
Compensation for hours worked beyond 40 hours per week. Under the Big Beautiful Bill, this income is completely excluded from federal income tax.
Tax-Free
Q
- QBI Deduction
-
Qualified Business Income deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities. The Big Beautiful Bill provides a 25% enhancement to this deduction.
Enhanced
S
- SALT Deduction
- State and Local Tax deduction allows you to deduct state and local income taxes, sales taxes, and property taxes. The Big Beautiful Bill increases the cap to $30,000.
- Standard Deduction
- A fixed deduction amount based on your filing status. Under the Big Beautiful Bill, standard deductions are enhanced beyond current law amounts.
- Senior Enhanced Deduction
- Additional deduction available to taxpayers age 65 and older under the Big Beautiful Bill, provided on top of the regular enhanced standard deduction.
T
- Tax Credit
- A dollar-for-dollar reduction in your tax liability. Credits are generally more valuable than deductions because they directly reduce the amount of tax you owe.
- Taxable Income
- Your income after all deductions and exclusions. This is the amount subject to income tax rates.
- Tax Bracket
- The rate at which your last dollar of income is taxed. The U.S. uses a progressive tax system with multiple brackets.
- Tip Income
-
Gratuities received by service workers. Under the Big Beautiful Bill, all tip income is excluded from federal income tax.
Tax-Free
Related Resources
Big Beautiful Bill Highlights
- Tip Income: Tax-free
- Overtime: Tax-free
- Child Credit: Enhanced
- QBI Deduction: 25% enhancement
- Senior Deduction: Additional benefits
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