For numerous Americans, the thought of paying income taxes makes their spine tingle. While everyone knows that individual income taxes are paid to the IRS (Internal Revenue Service) each year, the process of taxation itself can be confusing to many. There are various factors that affect how personal income is taxed, as well as how much you end up paying to the government (or receiving as a tax refund).
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Who Pays Income Tax?
Everybody has to pay income tax in order to keep the country running.
The United States needs a lot of money to function, and the funds that are collected from income taxes help finance the costs of education, the military, building and repairing roads, transportation, and many other public services. Both individuals and companies are required to pay a portion of their income to the federal government.
While the federal government is responsible for constructing and implementing tax laws, the IRS is in charge of enforcing those tax laws to make sure that everybody is paying the proper amount. The IRS also provides assistance to taxpayers who have questions, concerns, or issues with their tax situation.
How Much Income Tax Do You Have To Pay?
The amount of tax that you owe each year is based on your income level ― hence the name, income tax. Currently, the United States uses a progressive income tax system. Generally speaking, a progressive tax system means that the more you earn, the more taxes you pay (up to a certain percentage). That being said, the IRS also allows people to reduce their tax liability using various tax credits, tax deductions, tax exclusions, and other benefits.
The majority of individuals are subject to the “Pay-As-You-Go” system, which means that income tax is deducted from each paycheck and sent to the IRS. If you are self-employed, the IRS expects you to pay income tax on a quarterly basis (typically in equal installments every 3 months). At the end of the year, if your payments were not enough to cover the total income tax due, you must pay the rest to the IRS. On the other hand, if you paid too much over the course of the year (more than what you owe in income tax), the IRS will send back your excess payment in the form of a tax refund.
Know the facts and understand where your tax dollars are going.