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

References in periodicals archive ?
But borrowing constraints are relevant for tax policy, providing another reason for positive capital income taxation in the presence of taxes on labor income that do not vary with age (Hubbard and Judd 1986; Aiyagari 1995; Chamley 2001).
Federal Income Taxation of Corporations and Shareholders: Forms, Third Edition
The Fund invests primarily in a diversified portfolio of common and preferred stocks that pay dividends that qualify for federal income taxation at long-term capital gain rates ("tax-favored dividends").
This is a problem-based text that emerges out of recent instructional experiments Seto (Loyola Law School) has taken towards teaching basic income taxation law wherein he has restructured his approach around answers to six fundamental questions: What should we tax?
The first withdrawn bill is for amendments in the legislation regulating corporate income taxation while the second involved taxation of revenues of individuals.
Under the first practice, the employee elects to defer salary and agrees to make the deferral subject to a vesting schedule in order to avoid current income taxation under Sec.
Preliminary CPE Credit (based on a 100-min, hour): 10, Level: Update Prerequisite: Knowledge of corporate income taxation and Forms 1120 and 1120S preparation.
The revised hardbound volume covers all aspects of wealth transfer taxation, including gift tax, estate tax, income taxation of fiduciaries and preparation of the decedent's final return, and generation-skipping transfer taxes.
Subchapter J of the income tax law sets forth the rules for the income taxation of estates, trusts, beneficiaries, and decedents.
Consolidation will eliminate one level of federal income taxation and thereby result in current tax savings to the Company, Dart and their respective shareholders.
Albright focuses her practice on estate planning; estate and trust administration; estate, gift and generation-skipping taxation; income taxation of estates and trusts; and succession planning for closely held and family businesses.
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.