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

Fiscal 2009 saw more than an 8% drop in state income tax revenue and a blow to pensions’ stock investments. Spencer Jakab, WSJ, "Prophet of Muni Market Doom Wasn’t Wrong—Just Early," 26 Oct. 2018 Yet Fred Trump appears to have done exactly that, dodging roughly $5 million more in income taxes. Susanne Craig, The Seattle Times, "Trump engaged in suspect tax schemes as he reaped riches from father," 2 Oct. 2018 Property owners' income would decline as units fall under rent control, causing them to pay less in income taxes. Angela Hart, sacbee, "Will stronger rent control spread across California? Here's what you need to know.," 18 June 2018 As many as 135,000 people are working in the medical pot business across the country, generating $1.8 billion in income taxes and at least $300 million in state sales taxes last year, according to industry expert Matt Karnes of GreenWave Advisors. Trevor Hughes, USA TODAY, "Medical marijuana used pot's emotional connection to spread nationally," 27 Apr. 2018 Louisiana recently saw revenue projections for state government climb $346 million, thanks mostly to an increase in personal income taxes that resulted from new federal tax laws. Julia O'donoghue, NOLA.com, "To fully fund TOPS, here's what a Louisiana House committee cut," 18 Apr. 2018 The bank reported paying $1.47 billion in income taxes — down more than 25 percent from the same quarter last year. Deon Roberts, charlotteobserver, "Bank of America soars to record profit after tax overhaul | Charlotte Observer," 16 Apr. 2018 The couple, who formerly lived in Miami Springs, owed $1.5 million in federal income taxes. Jay Weaver, miamiherald, "Hialeah’s ‘junkyard millionaire’ and his son charged in Opa-locka corruption case | Miami Herald," 6 Apr. 2018 The retailer reported $957 million in income taxes last year. Andrew Liptak, The Verge, "President Trump accuses Amazon of scamming the USPS," 31 Mar. 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

6 Feb 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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