What is Federal Income Tax?

Federal income tax is a tax imposed by the United States federal government on individuals, corporations, estates, and trusts based on their income from various sources such as wages, investments, and business profits. Collected by the Internal Revenue Service (IRS), federal income taxes fund government programs, services, and functions at the federal level.

Who pays federal income tax?

Individuals, corporations, estates, and trusts pay federal income tax based on their taxable income. Income earned within a specific tax year determines the amount of tax paid. Individuals pay taxes on their personal income, while corporations pay taxes on their profits. Estates and trusts pay tax on income earned from investments and other sources.

Why is federal income tax important?

Federal income tax serves many vital purposes, including

  • Revenue Generation: It provides a significant source of revenue for the federal government to fund essential programs, services, and functions, including national defense, education, healthcare, infrastructure, and social welfare.
  • Wealth Redistribution: It helps redistribute wealth by imposing higher tax rates on higher-income individuals and corporations, promoting economic equity and social justice.
  • Economic Stability: Federal income tax policies can influence economic behavior, incentivize investment, savings, and consumption, and stabilize the economy during economic downturns.
  • Fiscal Policy Tool: It serves as a tool for fiscal policy, allowing the government to adjust tax rates and policies to address economic challenges, stimulate economic growth, or control inflation.
  • Social Programs: Federal income tax revenues support various social programs and safety nets, including Social Security, Medicare, Medicaid, unemployment benefits, and food assistance programs, benefiting individuals and families in need.
  • Infrastructure and Public Services: It funds the construction and maintenance of critical infrastructure such as roads, bridges, public transportation, and utilities, as well as essential public services like law enforcement, firefighting, and emergency response.

How is federal income tax calculated?

The amount of federal income tax paid is determined by an individual’s taxable income, which is their total income minus any deductions or exemptions they are eligible for. Tax rates are divided into brackets depending on the level of income and increase as income increases.

How much is federal income tax?

The amount of federal income tax an individual owes depends on various factors, including their taxable income, filing status, deductions, credits, and tax brackets. Federal income tax rates are progressive, increasing as taxable income rises. 

The 2023 income ratax brackets for individuals are as follows:

Tax RateSingle FilerMarried Filing JointlyMarried Filing SeparatelyHead of Household 
10%Up to $11,000Up to $22,000Up to $11,000Up to $15,700
12%$11,001 – $44,725$22,001 – $89,450$11,001 – $44,725$15,701 – $59,850
22%$44,726 – $95,375$89,451 – $190,750$44,726 – $95,375$59,851 – $95,350
24%$95,376 – $182,100$190,751 – $364,200$95,376 – $182,100$95,351 – $182,100
32%$182,101 – $231,250$364,201 – $462,500$182,101 – $231,250$182,101 – $231,250
35%$231,251 – $578,125$462,501 – $693,750$231,251 – $346,875$231,251 – $578,100
37%$578,126 and up$693,751 and up$346,876 and up$578,101 and up

When is the last day you can send in federal income tax forms?

The deadline for sending in federal income tax forms is April 15th each year. However, if April 15th falls on a weekend or holiday, the deadline is extended to the next business day. Taxpayers may also request an extension to file their tax returns, which generally extends the deadline to October 15th.

Ensuring you submit your forms by the deadline is essential to avoid penalties and interest charges. 

What is federal income tax withheld?

Federal income tax withheld refers to the amount of federal income tax that an employer deducts from an employee’s wages or salary and remits to the IIRS on behalf of the employee. Employers are required to withhold federal income tax from employee paychecks based on the information provided by the employee on Form W-4, including: 

  • Filing status
  • Allowances 
  • Additional requested withholdings 

The amount withheld is based on the employee’s taxable wages, tax brackets, and withholding allowances.

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