income tax

(redirected from Federal Income Taxes)
Also found in: Dictionary, Thesaurus, Legal, Encyclopedia.

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 ?
Even though Americans tend to say their federal income taxes are too high, they do not necessarily believe their taxes are unfair.
The poll also asked Americans for their views on whether people at various income levels or corporations are paying their "fair share" in federal income taxes, "paying too much," or "paying too little."
In view of the new federal tax-allocation rules, a review of the methodology of allocating federal income taxes for accounting and financial reporting purposes is in order.
For some consolidated groups, this may entail a review of an existing agreement; for others, it may require formalizing an otherwise established procedure for allocating federal income taxes. Since every consolidated group presents different technical tax and industry issues, it is difficult to generalize.
Employers are required to withhold federal income taxes from most employees' wages as and when they are paid.
However, during the legislative process, language was inserted to give the Code precedence over the BC with respect to Federal income taxes. Hence, bankrupt taxpayers find themselves with one set of rules for Federal tax purposes (contained in the Code) and another set of rules for state/local tax purposes (contained in the BC).
The $2 per share spread will produce compensation income of $2,000, and E must pay 1994 Federal income taxes of 41.05% or $821.
The employee's decision should be based on a comparison of the credit rate with the marginal tax savings of the exclusion, which includes the sum of Federal income taxes, state income taxes (if no adjustment is made to the Federal tax basel and FICA taxes.
The contributions are exempt from FICA and Federal income taxes, and perhaps state income taxes.
Furthermore, the reorganization plan made no express provision for the payment of Federal income taxes. The corporate debtor filed a delinquent tax return reporting the gains on the preconfirmation sale.
The major changes in the capital base are that deferred federal income taxes are no longer specifically excluded from taxation, and only taxpayers whose combined stated capital and surplus is less than $1 million may make the election to use Federal income tax accounting methods in determining surplus (Section 171.109(c)).
In October 1984, a refund claim was filed, asserting a reduction in federal estate tax for the additional amount of federal income taxes incurred by reason of the partnership loss disallowance.

Full browser ?