Taxation system in U.S. is very complex in nature because it involves payments at different level of government and uses different methods to calculate taxes from these domains. Local government including municipal, township, district, and country government are some domains that are included in the taxation system of the country. Regional entities like school and utility and transit districts are also covered in the system along with state and federal government.
Around 40% of the income earned by the workers in the country is deducted in paying taxes enrolled for them, like federal, state and local government tax. Every earning individual of the country is required to file his taxes on Tax day that usually falls on April 15 every year.
The governing authority of the Federal tax law is the Internal Revenue Service, which uses code for purpose in Federal tax for raising revenue and amends the code on the basis of feedback. The revenues gained from this tax are used b y the Federal government to achieve social, economic and political goals.
The whole taxation system of the country is distributed into different taxes with specific percentage on the basis of their progressivity. Payroll tax is at the minimal level of only 22.4%, corporate tax is little higher with 39.7%, individual income tax is around 49.7%, and the estate and gift tax is at the top most level with 69.3%.
Federal payroll taxes are primarily deducted from employees salaries by their employers on behalf of the Internal Revenue Service (IRS). Self-employed people pay taxes directly to the government. The amount to be deducted as payroll tax is calculated on the basis of expected annual salary of the employer and living situation (marital status, number of dependents and other factors). The tax amount varies every year on the basis of increment or decrement on the annual salary or the change in other associated factors.
The marginal tax rate in federal income tax ranges from zero to 35% on the basis of the annual income of the employee. It is progressive tax because the percentage of federal tax raises with individual having high annual income.
The tax demands individual to produce its identity as the resident of the country to file tax. Every citizen whether he is working in the country or outside the country has to file his/her tax according to tax law code declared by the governing authority.
Tax deducts or tax credits are given on certain situations like paying for mortgage interest on a personal home is deductible, if the taxpayer elects to itemize.
The accountable expense accounts in the businesses are subjected for variety of restrictions and IRS regulations. Taxes are further credited on the basis of Alternative minimum Tax and tax refunds the individual on specific conditions.
Next to federal tax is social security tax, which comprises around 6.2% of the total amount paid as tax from the income of theemployee. The employee ’s tax is taken by the employer on behalf of IRS and is submitted along with the employer’s tax, making the total of 12.4%. Self-employed individuals need to pay the total of both percentages from their income.
The Medicare tax is taken to help elder and disable people through a health insurance program, named as Medicare program.
A Payroll tax is taken to support unemployed people of the country.
Corporate tax varies from 15 to 39% according to the annual profit and income shown by the corporations.