Tax Code

Tax Code Wiki

What is Tax Code

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Federal tax code law is based on a codified system of laws that explains and illustrates government levies on economic matters that are called taxes. They are imposed by the states and local governments on net incomes of individuals, business entities, corporations and other organizations.

The Internal Revenue Code or IRC (formerly Internal Revenue Code of 1986) published the United States Code (USC) that is organized per topic, detailing information that covers income tax, estate tax, payroll tax, excise tax, gift tax, payroll tax and other forms of taxes. The U.S. tax code also includes procedures on the implementation spearheaded by the Internal Revenue Service (IRS).

Tax codes were first codified and include tax statutes in 1873, which resulted to the Revised Statutes of the United States. It was approved on June 22, 1874 wherein the laws enforced were running since December 1, 1873. It was in Title 35 of the tax codes that details the internal revenues. The U.S. congress made another revision in 1919 that actually made way to the U.S. Code in 1926 that includes tax statutes. Permanent tax laws were enacted in the 1939 Code by the U.S. congress, subsequently followed by amendments regarding the increase of corporate tax rates in the 1954 Code.

The 1954 Tax Code imposed on a progressive tax with twenty-four income brackets applied to tax rates that range from 20% to 91%. It details the marginal income tax rate for each level of taxable income.

The United States congress has amended the Title 26 of the tax code and most of the comprehensive revisions are included in the Tax Reform Act of 1986. There may be substantial revisions but still retained most of the lettering and numbering of subtitles, chapters, sub-chapters, parts, sub-parts, section and et cetera. Section 1 of the law states that all federal income tax accrued from taxable income on residents, citizens, estates and trust are subjected to tax and are compulsory. Section 11 talks about the obligatory corporate income tax implemented by the Internal Revenue Code.

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Itemized deductions for individuals including interest, losses and business related items are discussed in the IRC. There are fifty-one topics included in the Tax Reform Act of 1986 that includes detailed explanations and definition. The topics included are: tax rates, refundable and non-refundable credits, alternative minimum tax and environmental tax, definition of gross income (taxable items, specific exclusions from gross income), private activity bonds, personal exemptions (dependents defined), deductions (interests, taxes, losses and business-related items), itemized deductions for individuals, deductions unique for corporations, nondeductible items (special rules limiting or deferring deductions), corporate transactions (formation, distributions, reorganization and liquidations), pension and benefit plans, accounting methods and tax years, exempt organizations, accumulated earnings tax and personal holding companies, banks (special rules for certain items), natural resources provisions (depletion, etc.), trusts and estates (definitions, income tax on same and beneficiaries), partnerships (definitions, treatment of entities, members and special rules), insurance companies (special rules and definitions), regulated investment companies (mutual funds), source of income for international taxes, tax on foreign people or organizations (inbound international rules), foreign tax credit, exclusions of foreign income, taxation of U.S. shareholders of controlled foreign corporations, other international tax provisions, gains (definitions, characterizations, special rules and recognition), capital gains (separate taxation and special rules), inter-period adjustments (certain special rules), S corporations and cooperative associations (flow-through rules), empowerment (enterprise and other special zones, self-employment tax (like social security), withholding tax for nonresidents, consolidated returns and affiliated groups or corporations, estate tax on transfers at death, gift tax and tax on generations skipping transfers, social security and railroad retirement taxes, unemployment tax, income tax withholding (payment of employment tax), excise tax, alcohol/tobacco/firearms taxes, tax returns (requirements, procedures, payments, settlements and extensions), collection and refund (assessment, collections and abatement), interest on non-criminal penalties on underpayments or failure to pay, procedural rules, crimes and other offences (forfeiture and tax evasion), judicial proceedings, miscellaneous rules and special taxes and funds.

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All the rules provided by the tax code are enforced and implemented by the Internal Revenue Service (IRS). The federal government holds taxpayers responsible to pay taxes like income tax, property tax, sales tax, payroll tax, estate tax, gift tax, capital gains tax, excise tax, corporate tax and other various fees that the tax law deemed taxable. Taxes may vary from one state to another, but these accumulated amounts from taxpayers are used for federal purposes like infrastructure or state incentive programs such as scholarships and charity.

Actual tax codes (usually seen with several numbers and a letter) are used by employers or pension providers in calculating for the total amount of tax that will be deducted from the individual’s income or from the pension pay. It is also used in determining federal tax credit that may be nonrefundable and can be carried over to offset future taxes or can be liable for a tax refund as long as it is included well within the due date for tax filing.

Using the wrong tax code may result to paying too much or too little – hence, an erroneous filing of the income tax return that may affect possible tax refund, if applicable. There are different online tools provided by the IRS to aid in computing for the right amount of tax paid annually. There are also interactive tax assistants available to provide answers to different federal tax law questions that are addressed in simple, easy to understand answers and procedures. The local IRS Taxpayer Assistance Centers (TAC), where tax filing is usually done, is also the right venue to seek out personal tax help through phone or face-to-face assistance.


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Recently, IRS has made tax filing easier and faster. Taxpayers can now file their income tax returns online with the right tax code through IRS e-file preparers. Payments and getting tax refunds is also possible online by advising IRS to deposit tax refunds directly into bank accounts. This is a very convenient way especially for multiple tax filing of ten or more people and for those who wanted to do their own tax returns with the benefit of a fast, secure and free e-filing system.