income tax

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Income tax

A state or federal government's levy on individuals as personal income tax and on the earnings of corporations as corporate income tax.

Income Tax

A tax on a person's individual income from wages and salary, gambling winnings, and some other sources. Importantly, capital gains are usually excluded from income taxes and are subject to their own system of taxation. An income tax may be a flat tax, which means that all citizens pay the same percentage of their incomes to the government. Most of the time, however, an income tax refers to a progressive income tax, in which citizens with higher incomes pay higher percentages.

For example, one who makes $100,000 per year pays a higher percentage, called a marginal tax rate, than one who makes $25,000. However, it is important to note that the marginal tax rate does not increase for one's entire income, merely each dollar over a certain threshold. Suppose one pays 10% of one's income up to $25,000, and 20% thereafter. The taxpayer making $25,001 does not suddenly have to pay 20% of his/her entire income merely on the one dollar over $25,000. That is, he/she owes 10% of $25,000 (or $2,500) and 20% of the $1 over that (or $0.20). All things being equal, this taxpayer owes $2,500.20 in taxes. See also: Adjusted gross income.

income tax

A tax levied on the annual earnings of an individual or a corporation. Income taxes are levied by the federal government and by a number of state and local governments. One set of rules applies to individual income and another to corporate income. The size and structure of an income tax greatly influence security prices and investor decisions.

income tax

a DIRECT TAX imposed by the government on the INCOME (wages, rent, dividends) received by persons. The government uses income tax in order to raise revenue (see BUDGET), as a means of redistributing income (see DISTRIBUTION OF INCOME) and as an instrument of FISCAL POLICY. Income tax is usually paid on a progressive scale so that the greater the individual's earnings, the greater the rate of tax which is levied, up to some predetermined upper limit (currently 40% in the UK); low levels of income are usually tax exempt (by granting individuals an INCOME TAX ALLOWANCE), while the remainder is taxed according to various bands of income at rising tax rates up to the upper limit. In the UK, for example, there are currently three taxable income bands with taxable income up to £2,090 being taxed at 10%; £2,091 to £32,400 being taxed at 22%; and above £32,401 being taxed at 40% (as at 2005/06).

In the UK, the INLAND REVENUE assesses and collects taxes on behalf of the government for a fiscal year from 6 April to 5 April the following year.

Ideally, a progressive income tax structure should promote social equity by redistributing income but also encourage enterprise and initiative by avoiding penal rates of taxation at the upper end of the scale and, together with the SOCIAL SECURITY provisions, provide suitable incentives to work at the lower end of the scale. See DISTRIBUTION OF INCOME.

income tax

a DIRECT TAX levied by the government on the INCOME (wages, rent, dividends) received by households in order to raise revenue and as an instrument of FISCAL POLICY. Income tax is usually paid on a progressive scale (see PROGRESSIVE TAX). In the UK, the INLAND REVENUE assesses and collects taxes on behalf of the government for a fiscal year starting 6 April to the following 5 April. Taxes such as CAPITAL GAINS TAX and WEALTH TAX also impinge upon individuals but are quite separate in their scope and calculation.

Changes in income tax rates can be used as part of fiscal policy to regulate the level of AGGREGATE DEMAND, increases in tax serving to reduce DISPOSABLE INCOME available for consumption spending, while decreases in tax increase disposable income. Income taxes can also be used to affect the distribution of incomes in society in line with the government's social policy In the UK, there are currently (2005/06) three taxable income bands (that is, income after deduction of tax allowances): taxable income up to £2,090 is taxed at 10%; £2,091 to £32,400 is taxed at 22%, and above £32,401 it is taxed at 40%. See TAXATION, PRINCIPLES OF TAXATION, INCOME TAX SCHEDULES.

income tax

A tax on income. A simple concept, but one that requires thousands of pages of IRS statutes, regulations, revenue rulings, and court interpretations to explain. See the IRS Web site at www.irs.gov.

References in periodicals archive ?
Mertens, Law of Federal Income Taxation (Chicago, IL: Callahan and Co.).
With Federal Income Taxation of Corporations, tax is learned through critical thinking and analysis, not by repetition and memorization.
Code section 409A is important because plans subject to 409A must comply with documentary and operational guidelines, or a plan participant may be subject to immediate federal income taxation and penalties.
This research is not presented as a treatise about each and every aspect of federal income taxation pertaining to hedge funds and their investors.
(2) Judge Kozinski echoed the comment in Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders, [paragraph] 2.01 (6th ed.
Federal income taxation. Avoiding taxation at the time of deferral is essential when a company designs a nonqualified plan.
Hudson, Lind, and Yamamoto present law students with study guide to use while taking a course on US federal income taxation or while preparing to take an examination on it.
The adage, "You can't have your cake and eat it too," indeed applies to federal income taxation at the individual level and tax-exempt income and investment expenses.
Federal Income Taxation of Intellectual Properties and Intangible Assets, by Thomas Kittle-Kamp, Philip Posdewaite, and David Cameron (WG&L, 2007), is a complete reference that addresses the roles and the tax planning opportunities for all types of intellectual properties and intangible assets.
It's all there for the taking, bound between two covers with seductive chapter headings like "The Purchasing Journey" and "Federal Income Taxation." The introduction tells the abridged version of Binder's start in the business, along with some "dope" on the incarnation of Bellmarc's strict training program.
Federal Income Taxation of Life Insurance provides an overview of the federal tax rules and their implications for life insurance.
He is the author of numerous law review articles and co-author of Federal Income Taxation: Principles and Policies.

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