Tax

An Overview of Income Tax

An Overview of Income Tax

November 30
00:00 -0001

An Overview of Income Tax

Income Tax Background

The income tax is the predominant source of funding for the United States Federal Government. All employees and employers are subjected to an income tax–the government takes a percentage of an entity's salary to fund public services (such as the military) and pay for current expenditures. The income tax is a progressive system; those who earn larger salaries are taxed at higher tax rates. Typically the tax is collected over the course of the year in the form of payroll taxes.

Income Tax Brackets

In the Untied States federal tax system, the income tax, which is the largest source of revenue for the government, operates under a progressive system. At the heart of the progressive system are income tax brackets which are a system that distributes appropriate tax rates to citizens based on their respective incomes. The tax brackets match a range of salaries with a percentage tax rate. As a result of the progressive status, the higher the individual's income the higher their corresponding tax rate.

Income Tax

The income tax is the fundamental tax levy in the United States. All individuals and businesses who earn a salary or profit are subjected to the Federal income tax levy. The funds obtained through the levy are used to fund public goods and current expenditures. Individual workers are taxed throughout the year in the form of withholding; the income taxed is base of a gross salary. In contrast businesses are taxed through net income, meaning the total income earned minus any debts or costs.

Income Tax Rates

The income tax rates are the percentages attached to an individual's income. The rate is the percentage of income taken by the Federal Government through the income levy. Since the United States operates under a progressive setting the income tax rates attached to higher salaries are increased, whereas lower earners will possess a lower tax rate, The income tax rates correspond with the tax brackets or salary ranges established by the Federal Government. Currently there are 6 income tax rates in the form of 10%, 15%, 25%, 28%, 33%, and 35%.

Federal Tax ID

A federal tax ID is a critical resource employed by the Internal Revenue Service. As a result of the number of taxpayers and businesses in the United States the ability to levy an efficient tax system can be crippled through disorganization. The Federal Tax ID number is a 9 digit form of identification that is attached to employees and owners of all businesses in the United States. The names of the individuals are recorded into the Internal Revenue Service database so the agency can record all income numbers associated with the specific application. The Federal Tax ID number therefore is a crucial organizational tool that expedites the tax collection process.

Income Tax Calculation

An income tax calculation is a useful method employed to forecast an individual's tax return or payment. Income tax rates are created through an evaluation of the corresponding tax rates and tax brackets. A worker can figure out his or her income tax calculation by recording the amount of taxes withheld by the government throughout the taxable year, then attaching the appropriate tax percentage to their gross salary. If the amount withheld plus all deductions and write offs exceeds the taxable rate the individual will receive a tax refund to cover the difference.

Fica Tax

The FICA tax is instituted and collected by the Federal Insurance Contributions act. The FICA is taken out of all employee paychecks; the funds collected by the federal government program are used to fund the Social Security Program and Medicare. The FICA tax is collected at a rate of 7.65% every pay period–6.2% of the funds are distributed to Social Security, while the remaining 1.45% are offered to Medicare.

 

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