Federal Income Tax Wiki

Federal Tax

Who pays taxes and why?

The United States is a federal republic that consists of local and state governments who imposes various taxes on the people to generate income in order to provide its people with the welfare that the need from the government. Hence, the United States government imposes various federal taxes on different levels. A few of which include:

federal income tax
US Income Tax

This article will discuss these different types of taxes, one by one and explain how the people of the state are charged. Basically, people have to pay taxes which are a specific amount of money that they need to return to the government, which is decided according to the income that they people generate from any viable source. Taxes aren’t calculated according to accounting and finance rules, they are calculated according to the income that is earned. Many people try to reduce their income level on which they have to pay taxes, in order to keep more money to themselves. The few ways in which tax deductable income can be reduced is by personal allowances or by incurring certain non business related expenses such as paying rent and mortgage, making donations to charity organizations, medical expenses incurred and paying sales taxes. By rule, the federal tax varies from 15 percent to 35 percent of the total income earned by an individual.

Payroll & Property Tax

Out of the above mentioned taxes, Payroll taxes and Property taxes will be discussed first. Payroll taxes are typically collected by the federal government and the state government. Payroll taxes usually include Medicare taxes and social security takes and both the employees and employers have to pay this tax. Moving on property taxes are levied on a property owned by an individual that has significance market value. Schools and other institutions are charged differently and their taxes are separately dealt with. There are no specific rates that apply on property and the range varies greatly.

Sales Tax

sales tax
The tax man wants his cut

Sales tax is a tax levied on items and goods that are sold or leased out. There is no specific amount or figure that is usually applied, and the amount of tax levied greatly varies depending on the types of goods. Furthermore, apart from this varying amount the state may provide the governments of different states with the authority to impose general taxes along with sales taxes as well. The figure for the sales tax varies from a mere 1 percent to 10 percent depending on what the rules are for a particular state. One should know that sales tax is different from value added tax. Value added tax is levied on a particular good at numerous times while sale tax is collected by the seller only once. However, in the case that the object is resold, sales tax can be collected on the sale again. It is up to an individual state as to what the rules regarding this particular tax should be. Some states make a list of items that are exempted from sales tax. These goods usually include items that are purchased to be manufactured further (these items are known as industrial good) and items that are purchased to be resold. Other states also exclude grocery items, medications prescribed by the doctor and agricultural goods purchased by the people. The government or the state asks for a seller, to collect the sales tax at the time the sale is made, after which he or she is supposed to record and file the returns and then give the collected amount back to the state. If the seller has an issued exemption certificate only then will he or she be exempted. Furthermore, if the sale was carried out somewhere outside the state, then the seller doesn’t have to pay sales tax. Mostly organizations that are exempted from this tax include religious and charity organizations. Furthermore, the tax brackets for different states in the United States vary and these tax brackets will be discussed now, according to the various states present in the US.

Sales Tax According to the States in the US

  • Alabama – this state has a sales tax of around 4 percent. However, many sellers add in general taxes to this specified amount which increases the sales tax to up 12 percent.
  • Alaska – this state has zero sales tax. However, the local government may wish to charge some tax of up to 7.5 percent whenever they wish to earn federal tax return.
  • Arizona – the general sales tax levied in this state is 6.6%, however a more recent change in law, asks for customers who have purchased goods online, to pay taxes as well.
  • Arkansas – this state has a tax of up to 7 percent.
  • California – the state of California has a high sales tax, which can go up to 9.75 percent.
  • Colorado – the general sales tax is only 2 percent, however the government may wish to levy extra and additional taxes too which can bring up this amount to 10 percent. General non food related items go up to 10 percent after additions have been made.
  • Connecticut – the sales tax for this state is 6.35 percent.
  • Delaware – this state doesn’t have any particular set sales tax, hence it is zero.
  • Washington D.C. – this state has a sales tax of 6 percent.
  • Florida – also has a sales tax of 6 percent.
  • Georgia – 4 percent is the amount levied on purchase of goods.
  • Guam – this state like Alaska and Delaware has no sales tax.
  • Hawaii – this state also doesn’t impose a tax on the purchase of goods, but might charge a receipt’s tax.
  • Idaho – the sales tax is 6 percent for this state.
  • Illinois – the sales tax for this state is 6.25 percent.
  • Indiana – the sales tax for this state is 7 percent.
  • Iowa – Iowa has a sales tax of 5 percent.
  • Kansas – the tax is 6.3 percent for this state.
  • Kentucky – the sales tax is 6 percent.
  • Louisiana – the state has a tax of 4 percent.
  • Maine – 5 percent is the amount charged.
  • Maryland – 6 percent is the amount charged.
  • Massachusetts – 6.25 percent is the amount charged.
  • Michigan – 6 percent is the general sales tax in this state.
  • Minnesota – 6.875 percent is the amount charged to consumers.
  • Mississippi – the sales tax for this state is 7 percent.
  • Missouri – 4.225 percent is the tax charged to consumers.
  • Montana – this state doesn’t have any sales tax.
  • Nebraska – the general amount charged is around 5.5 percent.
  • Nevada – the tax charged in this state in 6. 85 percent.
  • New Hampshire – the tax bracket is this state varies from 7 percent to 9 percent.
  • New Jersey – the tax rate for this state is 7 percent.
  • New Mexico – 5 percent is the tax rate.
  • New York – it has a sales tax of only 4 percent.
  • North Carolina – 4.75 percent is the amount charged.
  • North Dakota – 5 percent is the amount charged.
  • Ohio – 5.5 percent is the amount charged.
  • Oklahoma – 4.5 percent is the amount charged.
  • Oregon – no sales tax is charged on the people of this state.
  • Pennsylvania – this state has a sales tax of 6 percent.
  • Puerto Rico – has a tax of 5.5 percent.
  • Rhode Island – 7 percent is the amount charged.
  • South Carolina – 6 percent is the amount charged.
  • South Dakota – 4 percent is the amount of sales tax.
  • Tennessee – 5.5 percent is charged as general sales tax.
  • Texas – 6.25 percent is the amount charged.
  • Utah – the sales tax is Utah is 4. 75 percent.
  • Vermont – this state has a 6 percent sales tax.
  • Virginia – has a sales tax of 6 percent as well.
  • Washington – has a sales tax of 6.5 percent.
  • West Virginia – this state has a sales tax of percent.
  • Wisconsin – has a tax of around 5 percent.
  • Wyoming – The last state, which is Wyoming, has a general sales tax of around 4 percent.

So these were all of the general sales taxes that are charged to the consumers in all 53 states of the United States of America, moving on to the next category of Federal tax which is federal income tax.

Federal Income Tax

income tax
Taxes can be overwhelming

Basically in the United States of America, earning individuals are charged a particular amount of tax on the income that they earn on a monthly or yearly basis. Basically the tax levied on the income, may increase or decrease as the income increases or decreases. The government or the state may wish to levy the tax directly or indirectly on individuals and corporations. However, trust organizations are taxed on their undistributed income which is different than the income which is earned on a monthly basis. There are different types of roles and parts people play in bringing in money and income on a monthly basis and different roles are charged federal income tax in different way. For example, partnerships do not have to pay income tax; however, the partners will have to pay a specific amount of money according to the shares that an individual owns in a partnership. So what is the income that is taxed upon?

tax deathgrip
Don’t let the taxman take all your money

By definition taxable income is calculated by the state according to the total income earned by an individual minus the deductions. What are these deductions? Deductions may include particular business expenses, personal expenses, mortgages, interests, taxes paid to the state and any donations made to charitable organizations. Basically the amount of income that is taxed is the income that is left with an individual to save, after all expenses and other things have been paid for. Individuals are supposed to self asses the federal income tax that they need to pay; this is usually done by recording and filling federal tax returns. One should always keep a record of how much tax is paid so as to show as a proof to the state and the authority that you are a decent tax payer. Many people show off their income and profits are being lesser than they actually are to exempt themselves from this particular tax. You should know that showing false information on your records in order to refrain from paying high taxes is considered as a serious offense and fraud. Lastly, capital gains, which are profits earned through luck or business are fully taxable.

Death Tax in the US

tax payment
Taxes are the governments golden calf

Death tax is more commonly known as estate tax in the United States of America. What is an estate tax? An estate tax is the tax that is accompanied by eh transfer of a property of a deceased person according to the will that was created before the person died. The property that is transferred to a family member or a friend brings with it the tax that has to be paid by the person since the death of the previous owner till to date, after the property has been transferred. Death tax is also known as inheritance tax and gift tax, since it wasn’t previously your headache, but now as the property or the estate is official and legally yours, you are responsible for the taxes that have to be paid for that particular piece of land.
When calculating the gross estimate of the worth of the estate, the federal authorities make some exemptions for which tax doesn’t need to be paid. These exemptions include:

  • The funeral expenses
  • Property left to the surviving spouse
  • Donations made to charitable organizations
  • The Taxes that have been paid at the beginning of the year.

An important rule that has been applied to the second point which has been mentioned above, which is that if the surviving spouse doesn’t live in the United States of America, then the tax will hae to be paid by the person the property has been transferred to.