What Is Federal Income Taxation?
Federal income taxation, or income tax, is simply a widespread tax that the federal government charges citizens based on the amount of money that they earn each year. The Internal Revenue Service, or IRS, is responsible for levying and collecting this tax
. It does not just apply to individuals, but to corporations, small companies, trusts and other such things. Capital gains, hourly wages, contract wages, and all other types of income are lumped together for the purpose of this tax, and it has to be paid in accordance with this total, not just on a single portion of a person's earnings.
How Is Income Tax Collected?
Generally speaking, income tax is going to be taken right out of a person's paychecks, based on the paperwork that he or she filled out when taking the job. Workers will never see this money, though their pay stubs will provide reports of the money that was extracted. At the end of the fiscal year, earnings are then calculated by individuals and submitted to the IRS. In many cases, people actually owe less than what was collected, so their reports will entitle them to an income tax refund, which can then be sent by check or direct deposit into a bank account.
In some cases, people will simply pay all of their income tax at the end of the year. However, doing this could open them up to fines from the IRS. Instead, they are often told to pay in a quarterly fashion if they make over a certain threshold. This is done for individuals who own their own companies and are paid in cash, for example, since income tax cannot be extracted prior to the obtainment of the capital.
State and Federal Taxes
One distinction that must be made is that income tax paid at the federal level is different than income tax paid at the state level. For most residents of the United States, both types of taxes are going to need to be paid. Federal income tax applies to all citizens who have earned enough to qualify. State income tax can be calculated at the same time with most electronic filing systems, but it is paid separately. Additionally, states are not required to ask for income tax. For example, neither Florida nor Texas currently have any income tax laws in place, though residents must still file on the federal level.
Do Taxes Have to Be Paid on Time?
Tax Day in the United States is April 15. Though you are allowed to file your income taxes earlier if you would like, you must have them in no later than the 15th. For most people, who should get 1099 forms or W2 forms —- two of the main tax reporting forms issued by employers —- this means they will have months to fill out the paperwork and submit it.
If something does prevent you from submitting in time, the IRS will sometimes grant extensions. For instance, filing Form 4868 to the IRS could get you an extension for the next four months, meaning that you do not have to file until the 15th of August. You can then ask for another extension of the same length, though you will be asked to show a valid reason to need it.
If doing this, however, keep in mind that you may have to pay interest based on the amount that you owe in taxes. As noted above, this may not matter if you expect a return, but it could be very important if you are a business owner and you never get returns, but only pay out to the government. Interest rates typically run between half a percent and one percent.