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

The state has no statewide sales or personal income tax, and no new or increased state taxes were seriously considered this year. Becky Bohrer, Anchorage Daily News, "Senate president: ‘No question’ lawmakers meeting in Juneau," 6 July 2019 An unworkable wealth tax and a top marginal income tax rate of 70 percent or higher are also okay. Victor Davis Hanson, National Review, "Democratic Candidates Aren’t on a Winning Track," 4 July 2019 Most of the country’s other households are paying a state income tax. Seattle Times Staff, The Seattle Times, "‘They can leave just as fast as they can come’: The best comments this week on seattletimes.com," 28 June 2019 Over and over again, liberal advocates have attempted to install a state income tax. WSJ, "What Principle Limits Our Public Unions?," 27 June 2019 Seattle has limited ways of raising money for public works because it's prohibited from having an income tax under Washington law. Ahiza Garcia, CNN, "Apple is adding 2,000 new jobs in Seattle," 25 June 2019 Unions have long backed the shift to a graduated income tax structure, under which higher incomes are taxed at higher rates. Dan Petrella, chicagotribune.com, "New state workers’ contract signals ‘return to normalcy’ for unions under Gov. J.B. Pritzker," 24 June 2019 The state Assembly has approved a bill that would require online vendors like Amazon to collect and remit sales taxes from third-party sellers in perpetuity, a move that would trigger income tax cuts. USA TODAY, "Arthur Ashe, missing Marilyn, pacifier-eating pup: News from around our 50 states," 21 June 2019 Under current law, anyone making less than $10,850 pays no income tax. Jessie Balmert, Cincinnati.com, "Crunch time for Ohio lawmakers: deals needed on taxes, graduation requirements, more," 20 June 2019

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

8 Jul 2019

Look-up Popularity

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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