The IRS collects income tax from US residents and businesses, with higher incomes paying higher tax rates. State taxes are also due annually. The IRS website provides resources for tax preparation, and while the middle class bears the greatest tax burden, those with high revenues can use accounting strategies for tax relief. The IRS was established in 1862 and became the agency it is today after the ratification of the 16th amendment in 1913.
The Internal Revenue Service (IRS) is a United States government agency charged with collecting annual income tax from working residents and businesses. Most citizens pay their income tax annually to the agency, although quarterly upfront payments are required in some cases for freelancers and businesses that exceed a certain income threshold. The IRS is part of the Treasury Department.
State and income taxes are based on the calendar year, with annual payments due no later than the following April 15, in most cases. The process of filing tax forms is called tax filing. An extension request is acceptable, but estimated payments must accompany the extension request, which must be submitted in advance.
IRS taxes are calculated on a sliding scale, with higher incomes commensurate with higher tax brackets. Although the exact tables change every year, simply put, the more a person earns, the more he pays. For those who pay an hourly wage or earn a salary, estimated taxes are taken from each paycheck. At the end of the year, an individual may get a refund for the overpayment or be required to pay more tax if an insufficient amount was deducted during the year.
Income tax is based on net income, or the amount left over after statutory deductions have been taken from gross (total) income. A person falling into the poverty line may not be required to pay income tax, while a modest salary of $50,000 US Dollars (USD) a year can end up costing the worker about 20% of their net income. Someone earning $120,000 USD a year might be in a tax bracket closer to 25% of net income.
Going by that logic, it would appear that a person or business making millions a year would pay the IRS an even higher percentage, but in the case of extremely high revenues, various accounting strategies, tax havens, and write-offs can result in significant tax relief. and in some cases, tax refunds. For this reason, it is commonly said that the middle class bears the greatest tax burden.
The forerunner of the IRS was the Bureau of Internal Revenue, which President Lincoln started in 1862 with the help of Congress. The income tax was intended to pay for the expenses of the Civil War and was intended to be temporary. In 1872, the income tax was repealed, to be enacted once more in 1894. While the Supreme Court challenged the constitutionality of the 1894 statute on a technicality regarding population density and appropriate taxation, the road was then esplanade. The ratification of the 16th amendment in 1913 removed the problematic language, opening the door for continued income tax laws. The Bureau of Internal Revenue eventually became the Internal Revenue Service.
Along with income tax, state taxes must also be paid to the appropriate agency, where applicable. In states where state tax applies, it is withheld from every paycheck year-round in addition to federal income tax. Because the state tax is much lower than the federal tax, the amount withheld usually meets the requirement, and often a small refund may be needed for the overpayment.
The IRS website provides downloadable forms, frequently asked questions (FAQs), and many helpful pages for preparing tax forms. There are also software programs designed to prepare tax forms for wage earners. People who don’t feel qualified to prepare their own taxes can have them prepared and sent to a Certified Public Accountant (CPA) for a fee.
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