What is Federal Income Tax?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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The federal income tax has existed in the United States since 1913 and is basically a levy or a fee that must be paid by nearly all Americans or businesses who earn income. Even if you are not a U.S. citizen, you are still required to pay federal income tax on income earned from sources located within the United States. The primary purpose of the income tax is to raise revenue necessary to operate the government and provide services.

How is Federal Income Tax Collected?

For most taxpayers, the tax is collected through a withholding system. Employers are required to withhold a portion of their employees’ earnings and forward that amount on behalf of the employee to the Internal Revenue Service (IRS), the government agency which is responsible for administering the tax system in the United States. For some taxpayers, the amount withheld from their paycheck is not enough to cover the total amount of their federal income tax liability and they will have to submit payment to the IRS at the end of the year. Those who can not afford the amount of federal income tax owed can contact the IRS and enter into a payment arrangement.

How Does the IRS Determine How Much Federal Income Tax You Owe?

The federal income tax system in the United States is progressive, which means that the amount of federal income tax owed depends on the amount of the taxpayer’s income. Typically, those with higher incomes pay a larger portion of their income in taxes. However, taxpayers can reduce the amount of federal income tax they owe through deductions and credits. For example, a limited amount of home mortgage interest and donations to charity can be deducted from a taxpayer’s federal income tax liability. Some taxpayers may qualify for credits against the federal income tax they owe. The most popular credit is the earned income credit which allows low to moderate income taxpayers to receive a refund if the amount of the credit is more than what they owe in federal income taxes. Frequently, taxpayers will overpay federal income tax and are entitled to a refund. Those who fail to pay federal income tax can face severe penalties such as property liens, wage garnishment, and in some cases, even imprisonment up to five years.

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