Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation. United States taxation includes local government, possibly including one or more of municipal, township, district and county governments. It also includes regional entities such as school and utility, and transit districts as well as including state and federal government.
Tax distribution
As of 2007, there are about 138 million taxpayers in the United States. The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of federal income taxes paid by taxpayers of various income levels.
Inflation and tax brackets
Most tax laws are not accurately indexed to inflation. Either they ignore inflation completely, or they are indexed to the Consumer Price Index (CPI), which some argue understates real inflation. In a progressive tax system, failure to index the brackets to inflation will eventually result in effective tax increases (if inflation is sustained), as inflation in wages will increase individual income and move individuals into higher tax brackets with higher percentage rate.
Federal income tax
Depending on individual income, the marginal tax rate ranges from zero to 35%. Income tax is also imposed on the taxable income of most corporations and again on dividends paid to stockholders, although individuals usually pay a preferential tax rate on dividends; this is sometimes referred to as double taxation.
One unique aspect of federal income tax in the United States, is that the U.S. uses citizenship in addition to residency in determining whether a person's income is subject to U.S. taxation. All U.S. citizens, including those who do not live in the United States, are subject to U.S. income tax on their worldwide income.
Tax deductions/credits
The U.S. government rewards certain behavior with tax deductions or tax credits. For example, amounts used to pay mortgage interest on a personal home may be deductible, if the taxpayer elects to itemize. Taxpayers who do not participate in an employer-sponsored pension plan may contribute up to $4,000 ($5,000 if age 50 or above) into an individual retirement account, and deduct that contribution from their gross income if they fall within certain income limits.
Methods of calculation
There are two required ways to calculate the U.S. income tax. The "regular tax" is based on the gross income minus any applicable deductions and then a marginal tax percentage is applied according to the taxpayer's income bracket.
The second way, the "Alternative Minimum Tax" (AMT) is based on the gross income, computed without regard to certain tax preference items (such as tax-exempt interest on certain private activity bonds) and with a reduced number of exemptions and deductions.
Tax distribution
As of 2007, there are about 138 million taxpayers in the United States. The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of federal income taxes paid by taxpayers of various income levels.
Inflation and tax brackets
Most tax laws are not accurately indexed to inflation. Either they ignore inflation completely, or they are indexed to the Consumer Price Index (CPI), which some argue understates real inflation. In a progressive tax system, failure to index the brackets to inflation will eventually result in effective tax increases (if inflation is sustained), as inflation in wages will increase individual income and move individuals into higher tax brackets with higher percentage rate.
Federal income tax
Depending on individual income, the marginal tax rate ranges from zero to 35%. Income tax is also imposed on the taxable income of most corporations and again on dividends paid to stockholders, although individuals usually pay a preferential tax rate on dividends; this is sometimes referred to as double taxation.
One unique aspect of federal income tax in the United States, is that the U.S. uses citizenship in addition to residency in determining whether a person's income is subject to U.S. taxation. All U.S. citizens, including those who do not live in the United States, are subject to U.S. income tax on their worldwide income.
Tax deductions/credits
The U.S. government rewards certain behavior with tax deductions or tax credits. For example, amounts used to pay mortgage interest on a personal home may be deductible, if the taxpayer elects to itemize. Taxpayers who do not participate in an employer-sponsored pension plan may contribute up to $4,000 ($5,000 if age 50 or above) into an individual retirement account, and deduct that contribution from their gross income if they fall within certain income limits.
Methods of calculation
There are two required ways to calculate the U.S. income tax. The "regular tax" is based on the gross income minus any applicable deductions and then a marginal tax percentage is applied according to the taxpayer's income bracket.
The second way, the "Alternative Minimum Tax" (AMT) is based on the gross income, computed without regard to certain tax preference items (such as tax-exempt interest on certain private activity bonds) and with a reduced number of exemptions and deductions.
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