Glossary
Effective 2026-04-28
Short alphabetical reference for the tax terms that come up across the Breakeven calculator and guides. Definitions are intentionally tight — two or three sentences — and link to the fuller explanation elsewhere on the site where one exists. Not tax advice; see the terms of use for the full scope and exclusions.
Balance due
The amount you owe when you file your return. Happens when your year-end withholding was less than your annual tax liability. Not a failure — often just a signal to update your W-4 going forward. See why did I owe taxes this year?
Effective tax rate
Your total federal tax divided by your total taxable income. Always lower than your marginal tax rate under a progressive bracket system, because most of your income was taxed at lower brackets below the top one you landed in.
Exempt (from withholding)
A W-4 status claimed by writing "Exempt" in the space below Step 4(c). Allowed only if you owed no federal income tax last year and expect none this year. Expires each February 15 and must be refiled annually to continue.
FICA
Federal Insurance Contributions Act. The combined 7.65% payroll withholding for Social Security (6.2%) and Medicare (1.45%), with an additional 0.9% Medicare surtax on high-income earners. Regular FICA is statutory and not adjustable by the W-4, so Breakeven does not model it (and a multi-job over-payment of Social Security is refunded automatically at filing). The 0.9% Additional Medicare Tax IS modeled because multi-job and dual-earner households routinely owe it at filing — see the methodology.
Filing status
The category you file under on Form 1040. Determines which tax brackets and standard deduction apply. Five options: Single, Married Filing Jointly (MFJ), Married Filing Separately (MFS), Head of Household (HOH), Qualifying Surviving Spouse. Breakeven's calculator currently supports Single and MFJ.
Form 1040
The primary annual federal income tax return filed by individuals. Line 15 reports taxable income; line 24 reports total federal tax owed for the year. Comparing line 24 against your total withholding produces your refund or balance due.
Form W-2
The year-end wage and tax statement your employer issues by January 31 of the following year. Shows annual gross wages (Box 1), federal income tax withheld (Box 2), and a breakdown of FICA, state, and other deductions. This is the source document that reconciles your withholding against your Form 1040 liability.
Form W-4
The form you give your employer telling payroll how much federal income tax to withhold from each paycheck. The current five-step structure dates to the 2020 redesign — older allowance-based W-4s are no longer accepted. See how to fill out the 2026 W-4 for the walkthrough.
Marginal tax rate
The rate applied to the next dollar of taxable income earned. Distinct from effective rate: a Single filer with $80k of taxable income in 2026 has a 22% marginal rate but about a 15% effective rate, because only the portion above $50,400 is taxed at 22%. See the current bracket table.
Pay frequency
How often your employer pays you. Per IRS Publication 15-T: weekly (52 periods per year), bi-weekly (26), semi-monthly (24), monthly (12), quarterly (4). Breakeven's calculator annualizes each paycheck's taxable wages by multiplying by the pay-frequency's periods-per-year number.
Pre-tax deduction
Amount subtracted from your gross pay before federal income tax is computed. Typical examples: 401(k) contributions, HSA contributions, FSA contributions, pre-tax medical premiums. Reduces your taxable wages (not your gross pay). On a paystub, shown as a separate line between gross and taxable.
Refund
The amount the IRS sends back to you when you file your return. Happens when your year-end withholding was more than your annual liability. Mechanically equivalent to an interest-free loan to the government during the year — targeting $0 (or a small balance due inside the safe harbor) is more efficient than a large refund.
Safe harbor rule
IRS Publication 505 rule: you avoid an underpayment penalty if your withholding covers the smaller of (a) 90% of the current year's tax, or (b) 100% of the prior year's tax (110% if your prior-year AGI was above $150,000). A small balance due inside the safe harbor is penalty-free.
Standard deduction
A flat dollar amount subtracted from your income before tax brackets apply. Set annually by the IRS. For 2026 (Revenue Procedure 2025-32): $16,100 Single / MFS, $32,200 MFJ, $24,150 HOH. Alternative to itemizing deductions. See the 2026 brackets page.
Step 2 (W-4)
Section of the W-4 for households with more than one W-2 job. Three options, in decreasing order of precision: (a) the IRS Tax Withholding Estimator, (b) the two-earners worksheet on W-4 page 3, or (c) the Step 2(c) checkbox — only usable with exactly two jobs of similar income. See multiple jobs and the W-4.
Step 3 (W-4)
Dependents credit section of the W-4. Enter $2,000 per qualifying child under 17, plus $500 per other dependent, summed into the total field. Only claimed on one spouse's W-4 in an MFJ household. Subject to income phaseouts the W-4 does not model.
Step 4(a) (W-4)
Section of the W-4 where you enter federal taxable income that did not come with W-2 withholding — interest, non-qualified dividends, rental income, 1099 consulting, taxable retirement distributions. Payroll withholds extra to cover the expected tax on that income.
Step 4(b) (W-4)
Section of the W-4 for deductions above the standard deduction. Either itemized deductions (mortgage interest, SALT, charitable) or above-the-line adjustments (HSA contributions, student loan interest, traditional IRA). Subtract the standard deduction from your expected total; enter the remainder if positive.
Step 4(c) (W-4)
Line on the W-4 for a flat extra dollar amount to withhold from each paycheck, added to the baseline payroll would otherwise compute. The most flexible lever on the form and the fastest way to close a projected balance due. See what Step 4(c) does and how to size it.
Tax bracket
A range of taxable income with a specific marginal rate. U.S. federal brackets are progressive: each bracket's rate applies only to the portion of income within that range, not to your whole income. Set annually by the IRS. See the 2026 bracket tables.
Taxable wages
Gross pay after pre-tax deductions. The number from which federal income tax withholding is computed. Labeled "Federal Taxable Wages" or similar on most paystubs; distinct from gross pay, which includes pre-tax amounts that reduce taxable wages but not FICA wages.
Under-withholding
When your year-end withholding is less than your annual tax liability, producing a balance due at filing. Most common causes: unchecked Step 2 in a two-income household, bonus income withheld at the flat 22% supplemental rate, or side income without Step 4(a) coverage.
Withholding
Federal income tax your employer deducts from each paycheck and sends to the IRS on your behalf. Computed per IRS Publication 15-T Worksheet 1A based on your W-4 filing status and step entries. The year-end total is reported in Box 2 of your Form W-2 and appears on Form 1040 line 25a.