Income Tax

Income Tax

What Is Income Tax?

The term “income tax” refers to a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations.

Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens. In addition to the federal government, many states and local jurisdictions also require that income tax be paid.

Certain investments, like housing authority bonds, tend to be exempt from income taxes.

KEY TAKEAWAYS

• Income tax is a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction.
• Income tax is used to fund public services, pay government obligations, and provide goods for citizens.
• The federal government and many states, as well as local jurisdictions, require that income tax be paid.
• Personal income tax is a type of income tax that is levied on an individual’s wages, salaries, and other types of income.
• Business income taxes apply to corporations, partnerships, small businesses, and people who are self-employed.