Federal income tax

Federal income tax in the United States is a tax levied by the Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities. The federal income tax is the primary source of revenue for the U.S. federal government. It operates on a progressive tax system, where the tax rate increases as the taxable amount increases. The concept of federal income tax was introduced with the ratification of the Sixteenth Amendment to the United States Constitution in 1913, allowing the government to tax individual and business income.

History

The history of federal income tax in the United States begins in the early 20th century. The Sixteenth Amendment, ratified in 1913, marked the start of modern income taxation in America. Before this amendment, the federal government primarily funded itself through tariffs and excise taxes. The need for a more stable and equitable source of revenue led to the adoption of the income tax.

Taxable Income

Taxable income includes wages, salaries, bonuses, and tips, as well as investment income and various types of unearned income. Deductions and exemptions are subtracted from gross income to determine taxable income. The Internal Revenue Code specifies what types of income are taxable and what types can be deducted.

Filing Status

The IRS recognizes several filing statuses, including single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. Each status has different tax brackets and rates, affecting the amount of tax owed.

Tax Rates and Brackets

The federal income tax system is progressive, meaning that higher income levels are taxed at higher rates. Tax rates vary depending on the taxpayer's income and filing status. These rates can change due to legislation, such as the Tax Cuts and Jobs Act of 2017, which significantly altered the tax brackets and rates for individuals and corporations.

Deductions and Credits

Taxpayers can reduce their taxable income through deductions, such as mortgage interest, state and local taxes, and charitable contributions. Tax credits, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit, directly reduce the amount of tax owed, rather than just reducing taxable income.

Filing and Payment

The deadline for filing federal income tax returns is typically April 15 of each year, unless that day falls on a weekend or holiday, in which case the deadline is the next business day. Taxpayers can file electronically through the IRS's e-file system or by mailing a paper return. Payments can be made online, by phone, or by mail.

Enforcement and Compliance

The Internal Revenue Service (IRS) is responsible for enforcing tax laws and ensuring compliance. This includes auditing tax returns, collecting unpaid taxes, and pursuing cases of tax evasion. The IRS offers various programs to help taxpayers comply with their tax obligations and resolve disputes.

Controversies and Reforms

The federal income tax system has been subject to ongoing debates and controversies, including discussions about its complexity, fairness, and impact on economic growth. Tax reform efforts, such as the Tax Cuts and Jobs Act of 2017, aim to address these issues by altering tax rates, deductions, and credits.