Income Tax

May 7th 2016

Overview

Every year, tax residents of the United States must pay a portion of their wages to the federal government. Many states also require a separate state income tax. The federal government and the individual states each have their own system for determining how much a person owes. Each person falls into a state and federal tax bracket depending on how much they owe. People who earn more will fall into a higher tax bracket, and people who earn less will fall into a lower tax bracket. In general, people who earn more pay higher taxes.

Regardless, it is possible to lower your taxable income, depending on what deductions you are eligible to make. Your tax rate will vary based on whether you have children or dependents and whether you are married.

In the United States, the deadline to pay your taxes for the previous year is April 15.

How It Works

Most people pay income taxes as soon as they start earning. Most employees at a company are required to complete a W-4 form, which specifies how much money the company should withhold from each paycheck. This way, you pay taxes at regular intervals. The amount that is withheld corresponds to the total taxes that you will owe based on your income. This total amount is proportionately withheld from each paycheck.

Every year, people are able to determine whether they have overpaid or underpaid their taxes. You can also determine whether you are available for additional tax credits or reductions. After completing your tax forms, you can determine whether you have overpaid, underpaid, or paid your taxes in full. If you overpay, you are eligible for a refund. If you underpay, you must pay the balance. If you paid your taxes in full, then no additional action is necessary.

Benefits

Both federal and state income taxes fund major infrastructural projects that affect you directly and indirectly. Without taxes, your quality of life may be substantially reduced. Even if someone pays more than you in taxes, you are still entitled to use the same roads and public services.

Many people are eligible for certain refunds and credits when they file their taxes correctly and on time. It is important for you to check whether you are eligible for tax credits, refunds, and deductions. Many of these tax credits vary based on that year's economic conditions. It is important that you follow up and check.

Cost/Pricing

Each individual will pay a different amount in taxes to the state and federal government. Factors that affect how much you pay include your income, place of residence, medical expenses, whether you work from home, student loan interests, whether you are married, and whether you have any dependents or children. Tax credits may also affect how much you owe in taxes.

Timing

You pay income tax throughout the year since your employer withholds a certain amount from each of your paychecks. April 15 is the deadline for you to submit your forms and tax payments.

Companies/Industries

The Internal Revenue Service (IRS) administers, monitors, and regulates your federal taxes. Certified public accountants (CPAs) are available to help you file your taxes to minimize how much you owe. Tax software is available to help walk you through this process, especially if you cannot afford to consult a CPA.

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