Federal Income Tax Law

Administered mainly by the Internal Revenue Service (or IRS), the main objective of federal income tax law is to generate revenue for the federal government. Federal tax code is often employed for public policy reasons. In order to motivate home ownership, federal income tax law offers a discount for mortgage interest expense.

Tax Planning

Before You See Your Pay

The system of direct withholding is used in federal income tax law. In other words, it is the responsibility of employers to deduct a portion of the taxpayer's income directly from their payroll checks, before the employee ever sees their pay. Self-employed individuals, make identical payments to the government. To calculate the withholding amount, you need to take into consideration the annual salary and the marital status of the employee.

Withholding does not calculate the annual tax pattern for the tax payer. After the completion of the year, the difference between the withheld amount and the actual tax is paid to the government or returned to the individual. This means the withholding is generally implemented on an honor system. If the individual does not posses enough withheld, a penalty will be imposed on them. You can find the deducted amount in IRS Publication 15. You can also review the IRS's Publication 505 can in order to estimate the amount of tax withheld.

Regarding Taxes

Income tax is widely regarded as a progressive tax because the tax rate is higher as a percentage income for higher-income individuals (i.e. people who earn more will pay more taxes). Income tax is also applicable on the taxable income of the majority of organizations as well as on dividends paid to stockholders. Interestingly, individuals normally pay a preferential tax rate on dividends, commonly known as double taxation. The most intriguing thing about the US federal income tax law is that the US uses citizenship, rather than residency, to evaluate whether the income of the person concerned is subject to US taxation. All U.S. citizens, including those who are living outside of the country, are subject to US income tax on their income. There are, however, some laws that play a part in minimizing double-taxation.