Taxes
Federal Income Tax
The tax imposed by the U.S. government on the taxable incomes of individuals, corporations, trusts and estates is known as federal income tax. Personal income taxes are payable on the total income of the individual (after some permissible deductions). Corporate income taxes are payable on the gross profit, the difference between the total receipts and total direct and indirect expenses.
Federal income tax was imposed for the first time by the U.S. government in 1861 to finance the Civil War. A tax of 3 percent was levied on incomes above $600, which rose to 5 percent for incomes above $10,000. These rates were raised in 1864. A new income tax act was enacted in the late 1800s. After the Civil War, income tax was rescinded in 1872.
In the present scenario, the revenues of the federal government mainly accrue from personal and corporate income taxes. Earlier, tariffs on imported goods constituted a large chunk of the government?s revenues, but, at present tariffs represent only a minor portion of federal revenues. Other non-tax fees are also levied, which recompense agencies for services or fill specific trust funds.
Several specific taxes, in addition to the general income tax, are also collected by the federal government. For example, the social support programs such as social security and Medicare are funded by taxes on personal earned income. Estate taxes are also levied on inheritances.
It is income tax that forms the bulk of the taxes collected by the U.S. government. Personal income tax rates range from 0 to 35 percent, depending upon the individual's total income.
Income tax is called a progressive tax because its levy is based on the total income of individuals: the higher the income, the more the tax. Corporate tax rates also range from 0 to 35%. A corporation pays taxes on its profits and may choose to distribute its profits after tax as dividend to its shareholders. Despite the fact that the money paid as dividend has been taxed at the corporate level, it is taxed again in the hands of the shareholder at the personal level. This is known as double taxation. The tax paid on the dividends by an individual is called dividend tax.
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Richard Romando
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