Income Tax
Income taxes in the US are mandatorily collected from businesses and citizens upon their incomes. They can be progressive or proportional, based on your location you might enjoy federal, state or local rate of taxation. Income tax is the most reliable government income source thus supporting government programs aimed at enhancing the wellbeing of citizens and also encouraging people to comply and pay tax according to their paying abilities.
Features:
- Progressive or Flat: Earnings taxes have a progressive feature, where tax rates are growing as income level is increasing, as well as simplified charge rates are flat, which are constant and equally applied in any income level.
- Levied on Individuals and Businesses: Income tax is a charge on an individual and company based on their incomes if they are making profit.
- Federal, State, and Local Levels: People have to pay income tax on the federal, state and occasionally local basis upon the rate and law of each taxation system.
Advantages:
- Stable Revenue Stream: A government receives enough revenue that can be used in ensuring that there are social services as well as public amenities by setting taxes for its citizens and the levels being based on their income.
- Progressive Taxation: That income taxes are important and related to progressive taxation and fair distribution of earnings are more their end is the eradication of income inequality.
- Funding Social Programs: Funds complement the incoming stream of tax revenue, which in return promote the funding of other important programs, such as Social Security, Medicare, and Medicaid.
Disadvantages:
- Incentive Challenges: The high income tax rates by presenting work, investment, and entrepreneurship deterrent, might mean that people will not work, invest and be entrepreneurs.
- Complexity: It could be a tedious and wearisome exercise for the taxpayers, businesses and tax officials if the codes and laws are too complex.
- Tax Avoidance: Nevertheless, some individuals and traders will possibly escape from income tax through legal loopholes, or by applying complex tax planning techniques.
Examples: Federal income tax, state income tax, and local income tax (in some areas).
Types of Tax in USA: Features & Advantages
The US taxation system is regulated by the federal, state, and local governments. Each level of government levies its own unique taxation methods to fulfill its different financial obligations. The Internal Revenue Service (IRS), which has a monopoly on federal taxation, checks income taxes, while the state and local governments are the authorities that collect the sales taxes, and property taxes among other imposts specific to their areas.
Table of Content
- Types of Taxes in the USA
- 1. Income Tax
- 2. Sales Tax
- 3. Property Taxes
- 4. Payroll Taxes
- 5. Excise Taxes
- Conclusion