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

Toronto-Dominion Bank’s first-quarter profit rose more than 2% from a year earlier, helped by its investment in TD Ameritrade and a much smaller provision for income tax. Vipal Monga, WSJ, "Toronto-Dominion Bank’s Profit Rises Despite Expense Growth," 28 Feb. 2019 This meant the subsidies to Foxconn would not be a tax write-off, but billions in cash that would be paid back by state income taxes paid by Foxconn workers. Bruce Murphy, The Verge, "Wisconsin’s $4.1 billion Foxconn boondoggle," 29 Oct. 2018 Our expansive growth is further exacerbated by the diverse needs of the incoming population, from young professionals and entrepreneurs to retirees attracted to a state without income tax, to those geographically displaced and rebuildiing. miamiherald, "Leigh-Ann Buchanan," 30 June 2018 The overhaul cut individual income taxes for 65% of filers, raised them for 6%, and left them unchanged for the rest, according to the Tax Policy Center. Laura Saunders, WSJ, "What You Need to Know About the New Tax Law (Now That You’re Doing Your Taxes)," 15 Feb. 2019 This long payback period was due to Walker and Republicans effectively cutting the state’s corporate income tax for manufacturers to zero in 2011. Bruce Murphy, The Verge, "Wisconsin’s $4.1 billion Foxconn boondoggle," 29 Oct. 2018 This piece would have essentially excused Amazon from paying corporate income taxes and local property and utility taxes for up to 30 years. John Gallagher, Detroit Free Press, "Michigan tried to lure Amazon to Detroit with $4 billion in tax breaks," 25 May 2018 The state has the nation’s highest income tax rates, topping out at 13.3 percent of taxable income, and depends on those taxes for 70 percent of its general fund budget. Dan Walters, San Francisco Chronicle, "Will $12 billion tax bite drive rich from California?," 23 Apr. 2018 As for the protests, teachers are pushing lawmakers to pass several more revenue-raising measures, including one that eliminates the income tax deduction for capital gains that would generate about $120 million annually. Christopher Brito, CBS News, "Mom posts photo of first grader with textbook used by Blake Shelton -- in 1982," 6 Apr. 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

18 Mar 2019

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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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