U.S. Individual Income Tax
Individual income tax in the United States is a tax imposed by the federal government (and most state governments) on the earnings of individuals. Here’s a breakdown of what it involves:
1. Who Pays It?
- U.S. citizens and residents who earn income.
- Includes wages, salaries, bonuses, tips, investment income, rental income, and other earnings.
2. Federal Income Tax
- Administered by the IRS (Internal Revenue Service).
- Collected progressively — higher income levels are taxed at higher rates.
- The U.S. uses a marginal tax rate system: different portions of your income are taxed at different rates, not all at one flat rate.
3. Filing Requirements
- Individuals must file an annual tax return (Form 1040).
- The return calculates how much tax you owe vs. how much was withheld from your paycheck.
- Refunds are issued if you overpaid; if you underpaid, you must pay the difference.
4. Tax Deductions & Credits
- You can reduce your taxable income through deductions (e.g., mortgage interest, student loan interest).
- Credits (like the Child Tax Credit or Earned Income Tax Credit) reduce the actual tax owed.
5. State and Local Income Tax
- Most states also collect income tax, though rates and rules vary.
- A few states (like Texas, Florida, and Washington) do not impose a state income tax.
6. Withholding
- Employers withhold estimated taxes from employee paychecks.
- Self-employed individuals must pay estimated quarterly taxes.
In short, individual income tax is the core revenue source for the federal government and is based on your ability to pay, with rates increasing with higher income.
