What is Federal Income Tax?

The Federal Government has established several ways to generate the revenue needed to pay for the operations of government agencies and capital improvements benefiting society.

The primary source of these funds is through income taxes, which are assessed based on the earnings of an individual. Federal income taxes are paid by individuals in proportion to their earnings, after reducing the considered earnings by the allowable tax deductions.

The revenue generated from this tax is used to pay for all sorts of federally-overseen programs, agencies, the military, interstate highways, and much more. Federal income tax is only one of the taxes that is assessed from the payroll of businesses across the country, but it tends to be the largest.

In 2016, the tax brackets, which are the bands that income levels are sorted into, range from those which will owe 10% in federal income taxes to those who owe 39.6%. The more someone earns, the higher percentage of their income will be owed in Federal Taxes.

People file a status, such as single or married filing jointly, which influences their bracket and the types of deductions that they are allowed to take. Deductions, as well as pre-tax contributions to qualified retirement plans, reduce the amount of income that is subject to taxation.

Most states also assess smaller amounts of income tax, but these are of course handled separately. The IRS oversees the assessment of Federal income tax as well as many other taxes.

The Federal Income Tax was made a permanent part of the United States Constitution in 1913 with the 16th Amendment, after tariffs on international trade were significantly reduced and the government was forced to find another source of revenue.

What is Residual Income?
What is Income Tax?