What Is Federal Income Tax?
Federal income tax is a tax levied by the U.S. government on the annual earnings of individuals, corporations, trusts, and other legal entities. It is collected by the Internal Revenue Service (IRS) to fund national programs and services, including defense, healthcare, infrastructure, and education.
Who Pays Federal Income Tax?
Most employees, freelancers, and businesses with taxable income are required to pay federal income tax. Individuals are taxed progressively, meaning higher income is taxed at higher rates based on the IRS tax brackets. Businesses are taxed based on their entity type (e.g., sole proprietorship, corporation, partnership).
How Is Federal Income Tax Withheld?
For employees, tax is typically withheld from each paycheck by the employer based on information provided on the employee’s W‑4 form. Independent contractors and freelancers make estimated tax payments throughout the year.
What Determines How Much You Owe?
The amount owed depends on:
Why Is Federal Income Tax Important?
Federal income tax plays a critical role in maintaining government operations and public services. It also helps redistribute income and stabilize the economy through tax policy.
How to File and Pay
Taxpayers must file an annual return using IRS Form 1040 (for individuals) or the relevant form for business entities. Payments can be made online or by mail. Failure to pay or file correctly can lead to penalties and interest.
