Definition
Income taxes may apply to wages, salaries, business income, investment income, and other sources after deductions and exemptions.
Political Dictionary
Income Tax
Income tax is a tax on earnings or taxable income.
Why It Matters
They are a major source of federal and state revenue.
How It Works
Taxpayers report income, claim allowed deductions and credits, and pay according to tax rates.
History
The modern federal income tax was established after ratification of the Sixteenth Amendment in 1913.
Example
A worker may have federal income tax withheld from each paycheck.
Common Misconceptions
- All income is taxed at the same rate.
- The highest bracket applies to every dollar earned.
- Income tax and payroll tax are identical.
Related Terms
- Fiscal Policy
- Monetary Policy
- Inflation
- Economic Growth
- Government Spending
Related Topics
See Also