Income Tax


DEFINITION of 'Income Tax'

A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public.


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Most countries employ a progressive income tax system in which higher income earners pay a higher tax rate compared to their lower earning counterparts.

The first income tax imposed in America was during the War of 1812. Its original purpose was to fund the repayment of a $100 million debt that was incurred through war-related expenses. After the war, the tax was repealed, but income tax became permanent during the early 20th century.

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  1. Are variable annuities tax deferred?

    Variable annuities are tax-deferred. This means an investor does not pay taxes on the interest income from his annuity until ... Read Full Answer >>
  2. Are estate distributions taxable?

    In general, most estate distributions are not subject to income tax. In some cases, however, a distribution from an estate ... Read Full Answer >>
  3. Are Social Security benefits taxable after age 62?

    Eligibility to collect Social Security benefits begins at age 62. Many seniors, to collect larger benefit amounts, wait until ... Read Full Answer >>
  4. How is a corporate bond taxed?

    A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale ... Read Full Answer >>
  5. What taxes will I pay if I win a lot of money while gambling in Las Vegas?

    Every year, thousands of people travel to gambling hot spots, such as the Nevada cities of Las Vegas and Reno, with the hope ... Read Full Answer >>
  6. What is the difference between income tax and capital gains tax?

    The conceptual difference between income tax and capital gains tax is that income tax is the tax paid on income earned from ... Read Full Answer >>
  7. What is the difference between federal and state withholding tax?

    You can file your federal taxes by yourself by downloading and printing the forms off the Internal Revenue Service, or IRS, ... Read Full Answer >>
  8. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  9. What are some of the arguments in favor of a value-added tax (VAT)?

    A value-added tax (VAT) offers several advantages over an income tax or traditional sales tax. It raises needed government ... Read Full Answer >>
  10. Are marginal tax rate schemes more fair than flat taxes?

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  11. How are trust fund earnings taxed?

    Trust funds are taxed differently depending on the type. A trust that distributes all its income is considered to be a simple ... Read Full Answer >>
  12. Can moving to a higher tax bracket cause me to have a lower net income?

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  13. Which constitutional amendment made income tax legal?

    The story of income tax is ripe with stops, starts and court battles. Due to British taxation being one of the triggers that ... Read Full Answer >>
  14. Why does the IRS withhold income taxes from employee paychecks?

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  15. How can I easily get ready for next year's tax season?

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  16. How can I make sure I'm ready to file my taxes?

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  17. Does everyone have to file a federal tax return?

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  18. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Full Answer >>

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