Glossary of Tax Terms

W-2

Form W-2

The form your employer sends to you and the IRS at the end of the year to report your annual wages, taxes withheld, and other information.

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W-4

Form W-4

The form you file with your employer so that your employer can calculate the amount of tax to withhold from your pay. You can file a new Form W-4 anytime your tax situation changes and you choose to have more or less tax withheld.

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Wash Sale

The sale and repurchase of stocks or securities within a short period of time. Under the wash sale rules, if you sell stock at a loss and purchase substantially identical stock within 30 days before or after the sale, you cannot claim the loss for tax purposes.

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Withholding

Taxes that are taken out of your wages or other income before you receive them and that are deposited in an IRS account. Taxes are most commonly withheld from wages, but they may also be withheld from other income, such as dividends and interest.

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Withholding Allowance

An allowance you claim on your Form W-4 for your employer to use in calculating the amount of income tax to withhold from your paycheck. The more allowances you claim, the less income tax will be withheld. Usually, you claim one allowance each for yourself, your spouse, and each of your dependents. However, you can adjust the number of allowances for your situation to avoid having too much or not enough tax withheld.

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