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Income Tax

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Income Tax

Income tax is the main source of revenue for the federal government and significant sources of revenue for most state governments. They are imposed on income generated by businesses and individuals and are levied on wages, salaries and other types of incomes. Income tax is not assessed on gifts, inheritances, most life insurance payouts and specified other types of income.

Though not provided for by the Constitution originally, the 16th amendment (ratified in 1913) allowed Congress to levy in income tax directly on the people without apportioning it among the states.

Income taxes are typically “progressive” in nature, which means that the greater the income, the higher the percentage of tax. As of 2020, the highest federal income tax bracket is 37%, which applies only to incomes well over $500,000. Six lower tax brackets apply to incomes under that threshold. Income tax is also subject to various exemptions and deductions that are adjusted often for policy, budgetary and economic reasons.

Federal income taxation is governed by the Internal Revenue Code, or Title 26 of the United States Code, and is enforced by the Internal Revenue Service, or IRS.