income tax

noun

Definition of income tax 

: a tax on the net income of an individual or a business

Examples of income tax in a Sentence

Federal income tax will be deducted from your pay. The new law will lower income taxes for most taxpayers.

Recent Examples on the Web

Washington is one of seven states without a personal income tax. Jon Talton, The Seattle Times, "Washington’s paradox: Progressive politics but regressive tax system," 23 Oct. 2018 The top one percent income earners in California pay 48 percent of the state's income tax. sacbee, "Tax haircuts and concerts – or the rich? Californians consider the options," 9 July 2018 Lawmakers proposed increasing income taxes from 3.75% to 4.95% and corporate taxes from 5.25% to 7%. The Economist, "Bruce Rauner discovers bipartisanship," 5 July 2018 Could state and local income taxes impact where pending free agent John Tavares goes? Michael Mccann And Robert Raiola, SI.com, "Where Will John Tavares Go and How Much Money Will He Take Home?," 27 June 2018 Still, Pontiac's income tax is lower than Detroit's (2.4% for residents, 1.2% non-residents). Detroit Free Press, "United Shore mortgage moves into new, amenity-filled Pontiac HQ," 23 June 2018 According to a recent Financial Times/CNBC article, Miami and Palm Beach are successfully recruiting hedge funds from states such as Connecticut, highlighting the absence of state income taxes in Florida. Juliette Mavroleon, miamiherald, "More high-quality private schools would electrify South Florida real estate," 17 June 2018 Most Puerto Rico residents don’t pay federal personal income tax. Maya Sweedler, WSJ, "Puerto Rico’s Hotels Offer Rare Good News in Aftermath of the Hurricane," 21 Aug. 2018 The study estimated that doubling all federal individual and corporate income taxes would not fully cover the additional costs. Brooke Singman, Fox News, "Bernie Sanders' 'Medicare for all' bill estimated to cost $32.6T, new study says," 31 July 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'income tax.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of income tax

1799, in the meaning defined above

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Last Updated

9 Dec 2018

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Time Traveler for income tax

The first known use of income tax was in 1799

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More Definitions for income tax

income tax

noun

Financial Definition of income tax

What It Is

Income tax refers to annual taxes levied by the federal government and most state governments on individual and business income.  By law, businesses and individuals must file federal and state income tax returns every year to determine whether they owe taxes. Governments use the taxes they collect to fund their activities.

How It Works

Income tax is applied to both earned income (wages, salaries and commission) and unearned income (dividends, interest and rents).

The U.S. and many other countries employ a progressive income tax system in which higher income earners pay a higher tax rate compared to their lower earning counterparts. The intent of progressive systems is to distribute wealth more evenly across a population.

Here's an example of how a progressive tax is structured: Assume you are single and report $80,000 in taxable income for the 2010 tax year (filing in 2011). In accordance with the federal tax rates defined for single filers in 2010, the first $8,350 of your income is taxed at 10%; the next $8,351 through $33,950 of earnings are taxed at 15%; and the remaining $33,951 through $80,000 of your earnings are taxed at 25%.

[Click here to see our Progressive Tax Definition and Example.]

Why It Matters

Income taxes reduce the amount of earnings that individuals and businesses are allowed to keep. There are a couple of strategies investors can use to retain more of their income. The first is investing in tax-advantaged assets like U.S. government bonds and municipal bonds.

The second is to open a retirement account that is tax-advantaged. An IRA, 401(k), SEP IRA and Roth IRA are all examples of tax-advantaged accounts. Investors can hold any asset they like within these accounts. The tax benefits of a retirement account don’t depend on the investments you hold in the account.

[InvestingAnswers Feature: How to Avoid an IRS Audit]

Source: Investing Answers

income tax

noun

English Language Learners Definition of income tax

: a tax paid on the money that a person or business receives as income

income tax

noun

Kids Definition of income tax

: a tax on the income of a person or business

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income tax

noun

Legal Definition of income tax 

: a tax on the net income of an individual or a business — compare excise, property tax

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More from Merriam-Webster on income tax

Rhyming Dictionary: Words that rhyme with income tax

Spanish Central: Translation of income tax

Nglish: Translation of income tax for Spanish Speakers

Britannica English: Translation of income tax for Arabic Speakers

Britannica.com: Encyclopedia article about income tax

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