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

Lacking modern methods for determining who was subject to the income tax, publicizing such information was considered a useful... Jay Starkman, WSJ, "Why Should Congress See Trump’s Tax Returns?," 21 Apr. 2019 By registering their companies in foreign countries, cruise lines are able to dodge not only corporate income tax, but reasonable labor laws. Aditi Shrikant, Vox, "The case against cruises," 15 Nov. 2018 But the extra revenue could allow states and cities to either spend more on services or use the levies to upgrade roads and schools or lower other taxes, such as those on property and income taxes. Charisse Jones, USA TODAY, "Shoppers may have to pay billions of dollars more a year in sales taxes when buying online," 21 June 2018 And with no state income tax, the great ponzi scheme that is Florida only works as long as there are more suckers, er, new residents coming in and buying up; property. Dan Sweeney, Sun-Sentinel.com, "A major high rise in Pompano, a planned lawsuit in Boca — when is new development too much?," 12 Apr. 2018 The credit is funded by the county's income tax and this year, the overall revenue generated from the tax increased. Amy Lavalley, Post-Tribune, "Auditor: Homestead credit may offset rising Porter County tax rates," 9 Mar. 2018 Tax receipts are flat so far this fiscal year, due in part to a decline in corporate income tax collection, while federal outlays have increased 10%, Treasury said. Kate Davidson, WSJ, "U.S. Tax Revenues Fall, Deficit Widens in Wake of New Tax Law," 13 Feb. 2019 When Rockefeller proposed his foundation in 1909, there wasn’t a federal income tax yet. Dylan Matthews, Vox, "The case against billionaire philanthropy," 17 Dec. 2018 True, Wisconsin was long known for its progressive traditions; in the early 20th century, its state legislature established the nation’s first workers’ compensation program and a progressive state income tax, among other measures. Jennifer Szalai, New York Times, "How Conservatives Bet Big on Wisconsin and Won," 11 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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Statistics for income tax

Last Updated

13 May 2019

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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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