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Global Work Glossary

Lost in a maze of global employment jargon? Find your way out with our handy collection of work and HR terminology

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Federal income tax

What is Federal Income Tax?

Federal income tax is a tax levied by the United States government on the annual earnings of individuals, corporations, trusts, and other legal entities. This tax is the primary source of revenue for the federal government and funds essential services and programs.

Tax Rates and Brackets

Federal income tax rates are progressive, meaning that the rate increases as the taxable amount increases. There are multiple tax brackets, each with a different rate, which ensures that individuals and entities with higher incomes pay a higher rate on their earnings. These brackets are adjusted periodically to account for inflation and other economic factors.


Filing Requirements and Deadlines

U.S. residents and certain non-residents are required to file federal income tax returns annually. The typical deadline for filing is April 15 of each year, unless an extension is requested and granted. Filing requirements vary depending on factors such as filing status, age, and income level. Taxpayers need to understand their specific obligations to avoid penalties for underpayment or late filing.


Tax Deductions and Credits

To reduce taxable income, taxpayers can claim various deductions and credits. Deductions lower the amount of income subject to tax, while credits reduce the tax itself. Common deductions include those for mortgage interest, state taxes, and charitable contributions. Credits may include education credits, child tax credits, and earned income tax credits.

Implications for Financial Planning

Understanding federal income tax is crucial for effective financial planning. Individuals and businesses need to plan for tax implications on their income and investments, which can influence decisions such as retirement planning, business investments, and personal savings strategies.

Federal income tax is a complex yet fundamental component of financial responsibilities in the United States, influencing economic decisions at individual, corporate, and government levels. Accurate and timely adherence to tax laws ensures compliance and contributes to the national funding of vital public services.

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