	Introduction

This report describes the terms most commonly used when discussing the federal individual income tax. An exclusion is an item of income that is not included as income for tax purposes because the tax code explicitly excludes—or exempts—it from taxation. Except for tax-exempt interest, exclusions generally are not required to be reported to the Internal Revenue Service. These payments are deducted from gross income in arriving at adjusted gross income. Adjustments to income function similarly to deductions. However, unlike deductions, adjustments are made to arrive at adjusted gross income, and hence can be claimed by all qualified taxpayers, whether or not they use the standard deduction amount or have itemized deductions (see " Deductions "). AGI is the basic measure of income under the federal income tax and is the income measurement before deductions and personal exemptions are taken into account. Deductions

Deductions from adjusted gross income are allowed for certain types of expenditures of income. Deductions function like adjustments and exclusions in their effect on tax liability. Exemptions

Before calculating total income, personal exemptions are allowed for the taxpayer, his or her spouse (if married and filing a joint return), and each dependent. Taxable Income

Taxable income, the narrowest measure of income used on the income tax return, is equivalent to adjusted gross income reduced by either the standard deduction or itemized deduction and the personal exemption. Taxable income is the base upon which the income tax rates are applied to calculate income tax liability. For most taxpayers, gross tax liability is equal to regular income tax liability, which is calculated by applying the marginal tax rate schedule to taxable income. Nonrefundable Credits

Nonrefundable tax credits are subtracted from gross tax liability to arrive at a taxpayer's final tax liability. Thus, nonrefundable tax credits generally reduce an individual's tax liability directly, on a dollar-for-dollar basis, and are available to all qualified taxpayers. Refundable tax credits are discussed later in this report. Total Tax Liability

Total tax liability, also sometimes referred to as final tax liability, is the amount of federal income tax owed by the taxpayer to the federal government after taking into account allowable refundable tax credits. Tax Refund

A tax refund is a payment by the federal government to a taxpayer whose withheld taxes, estimated tax payments, and refundable credits exceeded final tax liability, entitling him or her to a refund for overpayment of the tax bill. Amount Owed

When a taxpayer's total tax liability exceeds federal taxes withheld, estimated tax payments, and refundable credits, then the taxpayer will owe the federal government an additional amount to cover the shortfall in paid taxes. 2016 IRS Form 1040
2016 IRS Schedule A (Form 1040)
Appendix B.
Described in this report are the terms most commonly used when discussing the federal individual income tax. Most of these tax terms are explained in the order that they occur in the process of determining one's income tax on the Form 1040. Total income is the sum total of all income required to be reported for tax purposes before adjustments to income are made for special types of expenses which Congress has determined should be considered in calculating gross income. These adjustments function like deductions, except that unlike deductions, adjustments are calculated in arriving at adjusted gross income, and thus can be claimed by all taxpayers, not just those who itemize deductions. An exclusion from income refers to an item specifically excluded from determination of gross income.
Adjusted gross income (AGI) equals gross income less qualifying adjustments to income. It is the income measurement before deductions and personal exemptions are taken into account. Deductions from adjusted gross income are allowed for certain types of expenditures for which income taxation is deemed inappropriate or inadvisable. Deductions function like adjustments and exclusions in their effect on tax liability. In addition to the standard deduction, an additional standard deduction amount is available to certain individuals, for example the blind or elderly. Personal exemptions are allowed for the taxpayer, his or her spouse, and each dependent. Exemptions affect tax liability like deductions, adjustments to income, and exclusions.
Taxable income is adjusted gross income reduced by either the standard deduction (plus the additional standard deduction in some cases) or itemized deductions along with personal exemptions. Taxable income is the base to which the income tax rates are applied to calculate income tax liability. Tax liability is calculated by applying the marginal tax rate and schedule to taxable income. Tax credits are then subtracted from gross tax liability to arrive at a taxpayer's final tax liability. Hence, tax credits reduce tax liability directly, on a dollar for dollar basis. Tax credits are available to all qualifying taxpayers, whether they itemize deductions or not. Total tax liability is the amount of federal income tax owed by the taxpayer to the federal government. When a taxpayer's final tax liability exceeds federal taxes withheld, estimated quarterly taxes paid, and certain other credits, then the taxpayer has taxes due and must pay the federal government additional federal income taxes to cover the shortfall. A refund is a payment by the federal government to a taxpayer whose withheld taxes and/or estimated tax payments or refundable credits exceeded his final tax liability.
A copy of the 2016 IRS Form 1040 is included at the end of this report.
This report will be updated as warranted by legislative events.