income tax

(redirected from 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 ?
How, one might ask (and many have), can Schiff continue to maintain there is no legal obligation to pay income taxes when he has spent time in jail for not paying income taxes?
The tax burden of the "bottom 50 percent" comes from the regressive payroll and excise taxes, not income taxes.
SEC chair Christopher Cox recently announced that almost one-third of the material weaknesses discovered during the initial SOX Section 404 audits of internal controls related to accounting for income taxes. This percentage was second only to revenue recognition.
However, unless an family members are in high tax brackets, the trust probably will pay higher income taxes on the benefits than a spouse or child would.
For example, at the turn of the century, most Western countries adopted income taxes on individuals and businesses.
Senior executives in a broad spectrum of industries, the majority of whom represent companies with annual revenues more than $100 million, report, that corporate income taxes imposed by states and localities constitute 38 percent of their total tax burden, and real and personal property taxes together embody 37 percent.
And you can get a consensus that present tax law is biased against savings and investment because it relies too heavily on income taxes. But it's hard to get a consensus to go beyond that.
* However, the collection fees remained at $150 for corporations and $101 for personal income taxes.
It computed the capital gain on the sale using a basis of $1,500 (a $5 per share difference from the estate valuation) and paid income taxes for 1986 on the reported amount.
In the 1980s, Congress enacted "safe-harbor leasing," known to the common man as "buy-a-tax-break." This legislation was intended to allow companies not owing any income taxes to capture the business tax breaks of the 1981 legislation.
Over 60 percent of federal revenues came from individual and corporate income taxes, over 75 percent of which came from the richest 1 percent of the populace.
Kotlikoff found that replacing the income taxes with a retail sales tax would more than double the savings rate (after all, the whole world outside consumption becomes an IRA), increase the capital stock by a third, and boost national output by nearly a half trillion dollars.