Income Tax

Financial Dictionary -> General Finance -> Income Tax

In the United States, and generally across the world, income tax is a fee (tax) applied to individual person's annual income, and that of corporations and other legal entities. It is basically a progressive tax on all income, minus tax deductions and other exclusions. Income is anything that results in payment or gains, excluding gifts.

In order to fairly tax those at different scales of income, tax brackets are used. In 2009 if somebody earns $372,951 or more each year, 35 percent of that is taxed to the Federal Reserve. At the lower end of the scale, if somebody earns from $0 to $8,350 a year, only 10 percent is taken for taxation.

It is important to file a tax return by the given date each year, outlining your income and tax or else you may be subject to penalties. Deliberately writing false information on a tax return in order to get out of paying tax is enforced as a crime. It is not uncommon for the IRS to undertake an investigation and seek back taxes that they believe have been avoided over the years.

Historically the first Federal Income Tax was used to help fund the American Civil War effort. It has since evolved so that income tax is paid at all times.

Critics of income tax claim it to be illegal and unconstitutional. Strong evidence suggests that it does not go directly to cover national services and benefits of the people, but to the private Federal Reserve Bank in order to pay off the national debt that has developed since the Federal Reserve took over in 1913.

Despite this it is rare for somebody to get out of paying tax, and it is a generally accepted necessary evil of being an American Citizen.