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 Immigrant tax filers with children age 6 or younger would for the first time be able to claim the state’s earned income tax credit for the working poor. Alexei Koseff, SFChronicle.com, "California set to approve coronavirus-era budget that mostly avoids deep cuts," 26 June 2020 Any individual income tax refunds issued after April 15 will be paid with interest, even though the tax-filing deadline has been extended to July 15. Richard Rubin, WSJ, "IRS Will Pay Interest on Late Refunds—Even for Those Who Haven’t Filed Yet," 24 June 2020 Revenues in April were doubly depressed because the federal government, with states following suit, moved tax-filing day from April to July, causing uncertainty about when income tax will be paid. The Economist, "The state-budget train crash," 18 June 2020 Orlando’s sunny, family-friendly, and has no state income tax. The Atlantic, "Listen: An Extremely Bizarre Plan to Play Basketball," 16 June 2020 Pritzker is pushing for a progressive income tax that would have higher rates for those who earn more. Brett Rowland, Washington Examiner, "Thousands of protesters in Illinois demand police reforms," 8 June 2020 In comparison, the personal income tax only raised 21 percent. Washington Examiner, "Real estate revenue, a key source for New York City, dries up during pandemic," 15 June 2020 Wendt said in the press release that Fairfield’s city income tax, utility billing and permit offices remain open to the public, though many services are now available online through FairfieldOH.gov. Jeanne Houck, Cincinnati.com, "Fairfield and health officials work to identify people exposed to city employee with COVID-19," 15 June 2020 In fact, Ralston backed a move before the session was suspended to cut the state’s income tax rate for the second time in two years. James Salzer, ajc, "Groups ask Kemp, lawmakers to back tobacco tax hike to limit budget cuts," 11 June 2020

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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Time Traveler for income tax

Time Traveler

The first known use of income tax was in 1799

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Statistics for income tax

Last Updated

1 Jul 2020

Cite this Entry

“Income tax.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/income%20tax. Accessed 2 Jul. 2020.

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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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Comments on income tax

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