FEDERAL INCOME TAX Meaning and
Definition
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Federal income tax refers to the primary tax levied on the earnings or income of individuals and businesses by the federal government within a specific country. It is a progressive tax system employed by the government to generate revenue that contributes to funding public programs, national security, and various government operations.
The federal income tax provides a mechanism for the government to collect a portion of the income earned by individuals and businesses, based on their respective income levels. The tax is calculated through a predetermined set of tax brackets, which determine the rate at which the income is taxed. This progressive system implies that individuals or businesses with higher incomes are subject to higher tax rates, while those with lower incomes are subject to lower rates.
The determination and collection of federal income tax generally involve annual tax returns, wherein individuals and businesses declare their income and expenses, making use of applicable deductions and exemptions to arrive at a taxable income. The tax payable is then calculated based on predetermined rates for different income brackets and is paid to the federal government.
The revenue generated from federal income tax forms a significant portion of the government's finances, enabling it to finance various programs and initiatives aimed at enhancing the welfare of citizens, providing public services, and contributing to the overall development of the country.
