Federal Income Tax (FIT)
Titles: Unveiling the Framework of Federal Income Tax
What Is the Federal Income Tax?
The federal income tax is a levy imposed by the federal government on the annual earnings of individuals, businesses, trusts, and various legal entities. Not all income is subject to this tax; only earnings falling under the category of taxable income, whether earned or unearned, are subjected to the FIT.
Who Has to Pay Federal Income Taxes?
U.S. citizens and permanent residents employed in the United States, earning beyond a specific threshold, are obligated to pay FIT. Additionally, all businesses (except partnerships), trusts, and other legal entities are liable for federal income taxes.
Who Is Exempt From Federal Income Tax?
Certain individuals and entities typically exempt from federal income tax withholding include students, the visually impaired, non-profit organizations, U.S. citizens working abroad, individuals over 65 relying solely on Social Security, and those with dependent children eligible for the Earned Income Tax Credit. Filing as “exempt” means making no FIT payments throughout the year, contingent upon not owing FIT in the prior tax year and not anticipating any owed FIT in the current year.
What Are the Federal Income Tax Brackets?
The income tax rate is contingent on the taxable income earned. For the year 2023, there are seven income tax brackets, distinguishing rates for individuals and married couples filing jointly.
- 10%: $11,000 or less for individuals, $22,000 or less for married couples filing jointly
- 12%: More than $11,000 for individuals, more than $22,000 for married couples filing jointly
- 22%: More than $44,725 for individuals, more than $89,450 for married couples filing jointly
- 24%: More than $95,375 for individuals, more than $190,750 for married couples filing jointly
- 32%: More than $182,100 for individuals, more than $364,200 for married couples filing jointly
- 35%: More than $231,250 for individuals, more than $462,500 for married couples filing jointly
- 37%: More than $578,125 for individuals, more than $693,750 for married couples filing jointly
How Does the US Government Spend Federal Income Taxes?
Federal income taxes contribute to various programs and services provided by the U.S. government, including national defense, law enforcement, pensions, benefits for government workers, food and housing assistance programs, education enhancements, healthcare improvements, agricultural initiatives, public transit, emergency disaster relief, and interest on the national debt.
State vs. Federal Income Taxes
State taxes fund local services and programs, while FIT finances national initiatives. State income tax rates vary among states but are generally lower than FIT rates. As of 2023, nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.