A View at Federal Income Tax

Federal income tax is the levy that is applied by the government on the individual income you earn. This tax is used to fund various programs that the government undertakes in enforcing the law, defense and carrying out various foreign affairs. The rate charged for the income tax ranges from nil to about thirty five percent of the income. When it comes to the federal income tax, the more money you earn, the higher the tax you are expected to pay.

The tax is also required from corporations and the dividend that is payable to shareholders in a company. This means that there are times when individuals will pay double taxation because as an individual you are also expected to pay some tax on the dividend you receive.

The distinct thing about the federal income tax is that citizenship is used to determine whether your income is going to be subjected to taxation. As a U.S citizen you are required to pay taxes even if you do not reside in the country. For such cases, the country that you reside in will not ask you to pay taxes. This is in contrast to other countries which do not tax its citizens who live in other countries. The exception is only made when you are getting income from that country and the income that you earn is the only one that you are taxed for.

There are certain tax deductions the U.S government gives including money you use to pay your mortgage, if you join a pension plan that is backed by your employer, and money spent on childcare. There is also a tax credit for the families that do not earn a lot of income. Businesses also benefit from deductions when it comes to the expense accounts. The expenses have to be properly documented in form of receipts.

In the United States, income tax is calculated in two main ways. The first one which is based on your gross income where deductions are made and the tax is applied depending on your tax bracket. It is from this amount that you can get tax credits and if the amount remaining is a negative figure, you qualify for a tax refund. There are cases where you can get the refund even if you have not remitted any federal income tax. The other method of calculating the federal income tax is referred to as Alternative Minimum Tax. It is also based on the gross income you earn but is calculated without taking into consideration certain exemptions and reductions. This is mostly applied to those who earn higher incomes and the percentages range from 26% to 28%.As a taxpayer, you are expected to pay the highest among the two amounts that are calculated.

The second method of tax calculation was introduced to minimize cases of tax evasion by using the loopholes that exist in the tax laws. The rates of the Alternative Minimum Tax have never been reviewed and this poses a problem to many people.

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