So, as the year ends and the clock ticks, the tax season approaches, New Tax Laws. New Tax Brackets! For paying income taxes, many people make a mad dash and complicate things. Hence, it is important to get the basics straight as the rule book is ever-changing. You should understand it is essential to have good understanding of filing taxes. So, let’s dive into the tax landscape to know before you prepare for your income tax return. We at National Resource Connect are here to tell you everything you should know about federal income tax.
Firstly, Income tax is a direct tax levied on the net income of individuals and corporations. They are a source of revenue used by the government to provide medical and societal benefits to the public and pay for obligations. The United States income tax system is multi-tiered. So, the Income taxes imposed by the federal, state and local governments on the U.S. citizens and residents on worldwide income each year.
So, In the U.S.,every person who earns is liable to pay income tax regarding the distinct income tax rules. Therefore, this means you need to cough up your hard-earned cash in compliance with the tax rules to meet the expectations of the Taxman.
The Income tax is computed based on effective tax rates on your taxable income. So, If you want to know about your tax bill, use the IRS tax withholding estimator. The U.S government’s total tax revenue generated from payroll taxes, corporate taxes and tariffs besides personal income taxes.
Federal Income Tax
Firstly, the largest source of revenue for the government is the federal income tax. So, a vast majority of people don’t enjoy paying taxes, but your federal income tax bill helps the government provide you with Medicare and other benefits.
Therefore the Federal Income Tax is a tax on income levied by the federal government in the United States and administered by the IRS (Internal Revenue Service). So, Federal income taxes apply to any form of earnings that counts as a taxable income. As the final few weeks of the year are approaching, it’s time to crunch some numbers to get your taxes done right.
The United States operates on a progressive tax system, so the tax liability of a person increases progressively along with the increase in their taxable income. However, there are various deductions, exemptions and tax credits that can reduce the income tax amount owed.
So, the U.S income tax system mandates ‘voluntary’ compliance. Voluntary compliance means U.S taxpayers are expected to calculate and file their individual income tax returns on their own, in compliance with the tax code, without the involvement of the government. So, the failure to comply can cost you heavy penalties. Taxpayers who earn below the threshold required to pay less or no tax at all, depending on the marginal tax bracket.
Wondering about tax brackets for 2020? Here’s a look at the 2020 federal income tax brackets set up by the IRS.
2020 Federal Tax Brackets
|Tax Rate||Single Individuals||Married Individuals Filing Joint Returns and Surviving Spouses||Married Filing Separately||Head of Households|
|10%||Up to $9,875||$19,750||$9,875||$14,100|
|12%||$9,876 to $40,125||$19,751 to $80,250||$9,876 to $40,125||$14,101 to $53,700|
|22%||$40,126 to $85,525||$80,251 to $171,050||$40,126 to $85,525||$53,701 to $85,500|
|24%||$85,526 to $163,300||$171,051 to $326,600||$85,526 to $163,300||$85,501 to $163,300|
|32%||$163,301 to $207,350||$326,601 to $414,700||$163,301 to $207,350||$163,301 to $207,350|
|35%||$207,351 to $518,400||$414,701 to $622,050||$207,351 to $311,025||$207,351 to $518,400|
Firstly, filing and paying taxes can annoy, but if you are working for an employer, a major part of your task is already managed. So, your employer usually withholds the federal and state income tax from your paycheck, apart from Social Security and Medicare tax (F.I.C.A).
When you fill out a W-4 form, you decide the precise amount of tax withheld from your paycheck based on factors like your marital status and the number of dependents you have.
So, If you are self-employed, compute and make quarterly tax payments on your own. Sounds complicated, right? Look at the IRS guidelines. So, you can never get into any fraud.
Remember, A tax year is calculated from 1st January to 31st December, and you have until 15th April to file your federal income tax return. So, what are you waiting for? If you are yet to figure out what you require and how you should file to minimize what you’ll owe the Taxman coming April, be sure to do your homework.
So, Knowing the basics will help you understand how federal taxes work and how you can lower your tax bill to maximize your tax savings.