Income Tax in the United States

How income tax is structured

U.S. income tax is primarily assessed on taxable income, which is gross income minus allowable adjustments, deductions, and exemptions. The federal system is progressive: tax rates increase with higher levels of income. Employers commonly withhold tax from paychecks and send it to authorities, while self-employed individuals often make estimated payments. For examples of state systems see state governments, and for local levies consult local governments.

Key elements and filing

• Taxable income: wages, self-employment income, interest, dividends, and some other receipts.
• Deductions and credits: deductions reduce income subject to tax, credits reduce the tax owed.
• Filing: most individuals file an annual return using federal forms and may also file state returns; see resources for taxpayers.

History and development

Modern federal income taxation became permanent after the ratification of the Sixteenth Amendment in the early 20th century, which authorized Congress to levy taxes on incomes. Since then, lawmakers have adjusted the tax code frequently to address revenue needs, economic policy goals, and social priorities. For historical documents and legal background consult constitutional sources.

Income tax revenue funds a broad range of government activities, from national defense and social programs to education and infrastructure. State and local income taxes help finance schools, public safety, and local services. Because rules and rates vary widely, taxpayers should consult authoritative guidance when preparing returns or planning finances.