10 Things Everyone Should Know About Individual Income Taxes

6 Jan

1. In 1787, the Federal government was authorized by The United States Constitution to lay and collect taxes, but required that portion of tax revenues be given to the states. Several states adopted income taxes in 1837. The first Federal income tax was adopted as part of the Revenue Act of 1861.

2. Why do we need taxes? Government collects taxes so it can pay for the things we need: roads, schools, hospitals, fire department, police, the military, national parks, etc.

3. Congress and the President of the United States are responsible for writing and for approving the tax laws. The Internal Revenue Service is responsible for enforcing the tax law, for collecting taxes, for processing tax returns, and for issuing tax refunds.

4. Everyone pays taxes based on his/her income including wages, salaries, interest, dividends, investments, pensions, etc

5. Most states have individual income tax with the exception of Texas, Florida, Nevada, Washington, Wyoming South Dakota and Alaska.

6. Even if you are an U.S. emigrant and live abroad, you still must file an US Income Tax Return each year on your worldwide income.

7. Your tax rate changes depending on how much money you make in a given year. The higher is your income, the higher are your tax rates. Federal tax rates in 2011 varied from 10% to 35%.

8. Your tax liability can be reduced by taking advantage of various tax benefits. Government encourages some behaviors by using taxes as incentives. For example education tax breaks are used to promote postsecondary education.

9. Most of the time, income taxes are deducted out of your paycheck. If you paid more that you actually owed, you will receive a refund. If you paid less than you were supposed to, you have until April 15th of the following year to pay the difference.

10. In 2011, 46% of tax filers will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center. Some in that group will even get additional money from the government because they qualify for refundable tax breaks!

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