Taxation Legal Terms and Definitions

Work Opportunity Credit and Welfare-to-Work Credit The work opportunity credit and the welfare-to-work credit are scheduled to expire for wages paid to individuals who began working for you after 2003. Electric and Clean-Fuel Vehicles For vehicles placed in service in 2004, the maximum clean-fuel vehicle deduction and qualified electric vehicle credit are scheduled to be reduced by 25%, as compared to 2003. Standard Mileage Rate For 2004, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck is increased to 37.5 cents a mile for all business miles. Self-Employment Tax The self-employment tax rate on net earnings remains the same for 2003. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insur­ance) and 2.9% for Medicare (hospital insurance). Exemptions Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Earned Income Credit A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit. Acquisition The purchase of one corporation by another, through either the purchase of its shares, or the purchase of its assets. Dependent A person, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. Federal Insurance Contributions Act (FICA) Tax Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as the Social Security tax. Limited Liability Company An LLC may be classified for Federal income tax purposes either as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832, Entity Classification Election, for more details.

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	Did You Know?
	If you have employees, you are responsible for Federal Taxes If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold certain taxes from your employees pay checks. Employment taxes include the following. Federal income tax withholding Social Security and Medicare taxes Federal unemployment tax act (FUTA).