The federal income tax is simply a levy that the United States government charges people based on the amount of money they earn each year and other requirements.
The federal government office responsible for collecting taxes and deciding the processes for filing them is the Internal Revenue Service (IRS).
The federal income tax is not only imposed on individuals but also on companies, small businesses, trusts, or other forms of profit, including self-employed workers or independent contractors.
Capital gains, hourly wages, fees, and all the various kinds of taxpayer income are pooled together for federal tax reporting. The whole profit is known as gross earnings, and it has to be taken into consideration in its entirety for taxes, not just a portion of that profit.
If you have questions about federal taxes, this information can be very useful.
How do income taxes work inside the US?
The common rule is that income tax is collected directly from each person’s salary. The amount that is deducted depends on the employee’s instructions when making their W4 form for their employer.
The workers do not see that money, but in their pay receipts, they can notice the amount of money that is extracted.
At the end of each tax year, taxpayers receive a W2 form. There, the profits are calculated, and with that information, the taxes are submitted to the IRS.
If you owe less than what was collected from your paycheck, you will be entitled to a tax refund, which will be provided by check or through direct deposit into your bank account.
If you owe more, you will have to make a tax payment to the IRS for the difference.
If you are a taxpayer but not an employee of a company because you are self-employed, you must also file your taxes with the IRS. In these cases, you need Form 1099, which is prepared for you by the companies or people for whom you perform a job or service.
On the other hand, although companies and small businesses must deduct taxes from their employees and report them, they also have to file taxes on company profits.
Who has to pay taxes inside America?
Any person, company, business, or self-employed person who has generated income or profit during a tax year must report their federal income taxes to the IRS.
Taxes are also reported on trusts, estates, inheritances, interest, investments, lottery winnings, unemployment benefits, and other forms of income.
The following qualify as taxpayers:
- US citizens (by birth or naturalized)
- Resident foreigners and non-resident foreigners.
For tax matters, the IRS does not consider a person’s immigration status to limit their obligation to pay taxes. The general rule says that if you generate or have profits, you must report taxes.
To file taxes, you must use a taxpayer identification number. The options are:
Social Security Number (SSN)
Individual Taxpayer Identification Number (ITIN), if you do not qualify to have an SSN.
How much is the minimum I must earn to pay taxes?
In the US, not everyone is required to pay federal taxes. There are rules to determine who pays taxes or not, and this depends on the following factors:
- Age
- Civil status
- Income
- Dependent of another taxpayer
Differences between state and federal taxes
It should be clear that the federal income tax is different from the state income tax. But most U.S. residents must pay both taxes.
The federal income tax goes to everyone who has earned a minimum amount of money to meet this tax obligation. State income tax can be calculated at the same time as federal income tax, but it is paid separately, and the rules vary by state.
Federal tax is reported to the IRS, and state tax is filed and paid to your state’s tax office.
There are special cases when the same taxpayer has a tax burden in two states, either because he works and lives in different states, generates profits in two states, or has jobs in different states, among other reasons.