(3/10) The US income tax is the main contribution to America's national treasury. All taxpayers are US citizens who live and work in the country. A person takes into account all income they have received during the reporting period when they calculate their taxes. This article will provide a brief outline of income tax in the USA.
Types of Income Tax
In the US, there is a basic federal tax on income received by individuals, and in addition to it, a regional tax with individual rates in each state. The USA's federal income taxation has a progressive rate from 10 to 37%, i.e. the higher the income, the higher the tax rate. Regional income tax rates also vary from 0 to 7% on average.
How to Calculate Federal Income Tax
When US citizens face the problem of how to calculate federal tax withholdings, the solution can baffle most of them. And the situation is relevant since nonpayment or underpayment of income taxes for 2021 has increased by 40%.
Only a professional accountant can understand all the nuances of the ever-changing and evolving IRS tax code, and the burden is on employers and employees - on our shoulders. New types of taxes are added, exemptions and deductions increase. All this needs to be taken into account so that at the end of the tax season in April, you don't find yourself with an unexpectedly large amount of tax due on your tax return.
Information to Consider When Calculating Your Income Tax
The only relief for US citizens came when President Donald Trump passed the Tax Reform Act of 2017, which lowered the maximum individual tax withholding from 37 to 36.39%.
To find out the amount of income tax withheld, you have to "break down" your income by 12 months and then calculate the total amount. You need to consider the tax rate of all your deductions and exemptions.
Where Should I Get my Gross Income Amount From?
You should use data from the W2 Form or 1099 Form for this purpose. This form is to be provided by the employer. In some cases, if you need to fill out your W2 Form yourself, you can create a copy of the w2 online. For this purpose, we recommend using a w2 form generator (on some websites, you can also find generators of other tax forms and a paystub generator - bookmark them!).
U.S. Federal Income Tax Marginal Rates
These rates are also called "marginal rates" because they don't apply to your total income but only to certain portions of it. For example, if you earn an annual income of $60.000 a year, the first $9.700 of that amount will be taxed at a 10% rate, the subsequent $29.775 at 12%, and the remaining $20.525 at 22%.
Conclusion
As you can see, even a brief outline shows that tax law in the United States is quite thought-out. A progressive tax scale reduces the burden on average citizens and the poor, while rich Americans make larger contributions to the state budget. We recommend studying income tax law further and paying your taxes on time!
