Federal income tax (FIT) is a levy by the U.S. federal government on the annual earnings of individuals, corporations, trusts, and other legal entities. It serves as a primary source of revenue for the government to fund various public services, infrastructure, defense, and more.
Income tax is calculated based on an individual's taxable income, which includes wages, interests, dividends, and other types of earnings. The U.S. uses a progressive tax system, meaning the rate of taxation increases as income rises. Taxpayers can deduct certain expenses, like student loan interest and contributions to retirement accounts, reducing their taxable income.
Taxpayers have several options to reduce their tax liability. They can:
If you don't pay your federal income tax, the IRS can impose penalties and interest on the owed amount. Continued non-payment may lead to wage garnishment, asset seizure, or property liens. It's essential to address tax liabilities promptly to avoid these consequences and potential legal actions.
Federal income tax, collected by the Internal Revenue Service (IRS) in the U.S., funds a range of governmental operations and services. The revenues generated from these taxes are used for:
In essence, federal income tax is vital to keep the government running and provide essential services to the public.
Related: Federal Income Tax Withholding, Federal ID Number, Federal Tax Deposit, Quarterly Federal Tax Return, Flat Tax Withholding