Income tax in the United States

The 2015 edition of Form 1040, the tax form used for personal federal income tax returns filed by U.S. residents

The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed (with some exceptions in the case of federal income taxation), but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.

"Income taxes" are levied on wages as well as capital gains, and go to federal and state government general funds. "Payroll taxes" are only levied on wages, and usually refer to FICA taxes that fund Social Security and Medicare. Capital gains are currently taxable at a lower rate than wages, and capital losses reduce taxable income to the extent of gains.

Taxpayers generally must self assess income tax by filing tax returns. Advance payments of tax are required in the form of withholding tax or estimated tax payments. Taxes are determined separately by each jurisdiction imposing tax. Due dates and other administrative procedures vary by jurisdiction. April 15 following the tax year is the deadline for individuals to file tax returns for federal and many state and local returns. Tax as determined by the taxpayer may be adjusted by the taxing jurisdiction. Forty-two states and some localities in the United States levy a state income tax on individuals, while forty-seven states tax the income of corporations.

For federal individual (not corporate) income tax, the average rate paid in 2020 on Adjusted Gross Income (income after deductions) was 13.6%.[1] However, the tax is progressive, meaning that the tax rate increases with increased income. Over the last 20 years, this has meant that the bottom 50% of taxpayers have always paid less than 5% of the total individual federal income taxes paid, (gradually declining from 5% in 2001 to 2.3% in 2020) with the top 50% of taxpayers consistently paying 95% or more of the tax collected, and the top 1% paying 33% in 2001, increasing to 42% by 2020.[2]

  1. ^ Erica York (January 26, 2023), Summary of the Latest Federal Income Tax Data, 2023 Update, Tax Foundation, Wikidata Q118189145
  2. ^ Erica York (January 26, 2023), Summary of the Latest Federal Income Tax Data, 2023 Update, Tax Foundation, Wikidata Q118189145

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