What Is the Tax Code? How the U.S. Tax Code Works and Sections

What Is a Tax Code?

The term tax code refers to a series of laws and regulations that outline the rights and responsibilities of the general public as they relate to taxation. Understanding the tax code is important for anyone who prepares and files taxes, including individuals, corporations, and tax preparers, so they can avoid any errors and penalties. The rules that make up a tax code are passed by governments at various levels. For instance, the federal tax code in the United States is called the Internal Revenue Code (IRC), which will be the main focus of this article.

Key Takeaways

  • A tax code is a series of laws and regulations that outline the rights and responsibilities of taxpayers as they relate to taxation.
  • The Internal Revenue Code is the tax code established by the United States federal government.
  • The IRC is enforced by the Internal Revenue Service in accordance with Treasury Department regulations.
  • The U.S. tax code also lays out rules on the tax treatment of estates and gifts and how retirement plans are set up among other things.
  • There are resources online and in print to help taxpayers stay updated on tax laws under their country's tax codes.

How a Tax Code Works

Tax codes are a series of laws passed by governments to provide taxpaying entities with information on how they must prepare, file, and pay their taxes. As noted above, the federal tax code in the United States is called the Internal Revenue Code. Enacted by U.S. Congress, it is made up of a series of laws that are designed to raise revenue for the federal government and are enforced by the Internal Revenue Service (IRS). The IRS implements statutory rules in accordance with Treasury Department regulations that prescribe their applications in different scenarios.

The IRC contains thousands of numbered sections that provide specific definitions, rules, and levies. The regulations issued under the tax code contain more detailed rules that prescribe the code’s application in specific circumstances. These regulations are legal requirements that taxpayers must follow. They are published in Title 26 of the Code of Federal Regulations (26 CFR).

Laws under the IRC outline the responsibilities of individual and corporate taxpayers, including (but not limited to) income tax deadlines, filing statuses, income thresholds, tax brackets, information about tax deductions and credits, required forms and schedules, fees, penalties, and the course of action in cases of dispute. It also covers:

  • The tax treatment of estates and gifts
  • The setup of retirement and benefit plans (like Social Security and Railroad Retirement) and unemployment taxes
  • How to establish procedural, penalty, withholding, and other rules

For example, Sections 1 through 5 of the IRC impose the federal income tax on the taxable income of individual U.S. citizens and residents, Section 11 imposes the corporate income tax, and Section 641 taxes estates and trusts. Subsequent provisions encompass a broad range of topics like alcohol, tobacco, and other excise taxes beginning with Section 5001, and rules on crimes and criminal penalties start at section 7201.

Tax codes are not static. As such, they may change based on economic shifts and other changes.

Tax Codes: Title 26-Internal Revenue Code

The following is a list of some of the sections of Title 26 or the IRC. Each subtitle has different chapters that contain specific rules and regulations.

  • Subtitle A: Income Taxes
  • Subtitle B: Estate and Gift Taxes (sections 2001 to 2704)
  • Subtitle C: Employment Taxes (sections 3101 to 3512)
  • Subtitle D: Miscellaneous Excise Taxes (sections 4041 to 4982)
  • Subtitle E: Alcohol, Tobacco, and Certain Other Excise Taxes (sections 5001 to 2872)
  • Subtitle F: Procedure and Administration (sections 6012 to 7874)
  • Subtitle G: The Joint Committee on Taxation (sections 8001 to 8023)
  • Subtitle H: Financing of Presidential Election Campaigns (sections 9001 to 9042)
  • Subtitle I: Trust Fund Code (sections 9500 to 9602)
  • Subtitle J: Coal Industry Health Benefits (sections 9702 to 9722)
  • Subtitle K: Group Health Plan Requirements (sections 9801 to 9834)

Other tax laws are set by state, local, and county government authorities. Many states model major provisions of their income tax laws on the federal tax code’s substantive rules, but impose different rates and often provide different exemptions and exclusions.  

Tax Code Resources for U.S. Taxpayers

Most individual taxpayers with typical sources of income do not need to research the technical intricacies of the federal tax code and regulations. The IRS issues income tax forms and instructions each year that instruct taxpayers how to complete and file their returns.

The IRS also issues publications that provide individuals with guidance in ordinary language for common situations (like the sale of a home) and less frequent circumstances. IRS publications for business taxpayers explain how to handle capital investment, expenses, and income.

Other resources include those that describe the special rules for charities and other organizations. IRS publications are freely available in print or online on the IRS website. These resources enable taxpayers to handle their own tax returns or, for complicated returns, help them better understand the issues that they take to advisors.

Other Tax Codes

The IRC is just one example of a tax code. Other countries have their own tax codes that work the same way. For instance:

  • Canada's tax code is the Income Tax Act, which is enforced by the Canada Revenue Agency (CRA)
  • The United Kingdom has a series of tax codes that are administered by HM Revenue and Customs (HMRC)
  • Australia's Taxation Office oversees the administration and enforcement of the country's tax laws, including different rates and codes
  • Income tax laws fall under India's tax code or the Income Tax Act of 1961 as administered by the country's Income Tax Department

What Is a Tax Code?

A tax code is a law that prescribes the levies imposed by a government on individuals, businesses, other entities and on transactions, such as property sales, that are subject to its jurisdiction, to fund its operations. In the United States, federal, state and local governments have enacted tax codes of varied scope and design.  

What Tax Codes Apply to Individuals?

The U.S. government and most state and local governments have income tax codes that are the principal tax obligation for most individual taxpayers. State and local jurisdictions also impose a variety of taxes that in some cases create substantial costs for individuals, such as the sales and use tax and real property tax.  

Where Can You Find the US Income Tax Rules?

Known officially as the Internal Revenue Code, the U.S. tax code contains the statutory rules enacted by the U.S. Congress to determine taxable income and the amount of tax due on that income. Regulations issued by the Department of the Treasury provide more detailed rules based on the Code; these regulations also have the force of law.

Taxpayers can obtain guidance on tax compliance in clear, ordinary language free of charge on the IRS website. The site provides articles on common tax topics and also offers links to IRS publications that contain more detailed guidance generally understandable by a non-technical reader.

The Bottom Line

Tax codes are laws that define the rules and regulations about taxation. In the United States, the federal government's tax code is called the Internal Revenue Code. Taxpayers are obligated to comply with both the code and the regulations issued under it. Many tax rules are highly technical and complex, but for most individual taxpayers the IRS provides readily accessible, clear guidance free of charge.    

Regardless of where a taxpayer lives, they can easily access the rules and regulations of most jurisdictions online. For instance, taxpayers can consult the electronic version of the Code of Federal Regulations online. Most individuals, though, will find adequate information in the topical income tax guidance on the IRS website. In addition, the IRS publications accessible through the links on the site offers clear, useful assistance in ordinary language.

Article Sources
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