income tax

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Related to Federal income tax: Social Security Tax

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 ?
The debt was previously ignored for federal income tax purposes, and the forgiveness of an "ignored" debt would itself be ignored.
Internal comparison to federal income tax reported in the CE.
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."
Pursuant to 301.9100-2(b), in the case of a calendar-year-basis taxpayer who has timely filed his or her 1998 federal income tax return, he or she can elect to recharacterize a 1998 IRA contribution, including a Roth IRA conversion for which the taxpayer was not eligible, provided the appropriate corrective action occurs on or before October 15, 1999.
Because the requirements for federal income tax exemption are more stringent than those for nonprofit corporation status, there are some associations that are nonprofit corporations but do not qualify for exemption from federal income tax.
After federal income tax, you'd net 5.04% in a 28% bracket, or 4.83% in a 31% bracket.
Eighty-five percent of households paid no federal income tax at all (though they paid a considerable amount in excises and tariffs), and there was a widespread feeling that this was right.
Lawrence Collins and Icy Love Martin are charged with conspiring with Mystique Pratcher, who was charged elsewhere, to file at least 160 false federal income tax returns fraudulently claiming more than $680,000 in federal income tax refunds and theft of government funds.
A diversified, closed-end management investment fund, Federated Premier Municipal Income Fund provides current income exempt from federal income tax, including the AMT and it invests in long-term, tax-exempt municipal bonds diversified among states, sectors and issuers.
The figure comes from the nonpartisan (http://taxvox.taxpolicycenter.org/2011/07/27/why-do-people-pay-no-federal-income-tax-2/) Tax Policy Center , which actually reported that 46 percent of Americans would not pay a federal income tax in 2011.
In qualified plans covered by section 529 of the Internal Revenue Code, withdrawals generally are not subject to federal income tax if the money is used to pay for qualified educational expenses.
97, was issued last year in which the IRS announced that until further guidance is issued, it will not assess FICA or FUTA taxes, or impose Federal income tax withholding obligations, upon either the exercise of an option or the disposition of the related stock.

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