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

Since Koch was born, the annual top marginal income tax rate has been cut by 54%. Tim Fernholz, Quartz, "Could a wealth tax end David Koch’s era of inequality?," 23 Aug. 2019 After the federal corporate income tax rate was reduced, the amount was lowered to $168 million for 2018 and 2019. Laura Hancock, cleveland.com, "PUCO reverses disputed FirstEnergy charge; but customers won’t really get a refund.," 22 Aug. 2019 The tax bill passed by Republicans in 2017 cut income tax rates for individuals and corporations. Nicholas Wu, USA TODAY, "CBO report estimates US budget deficit will be more than $1 trillion by 2020," 19 Aug. 2019 In its report, EPI called for policies including reinstating higher marginal income tax rates at the very top and setting higher corporate tax rates on companies with higher ratios of CEO-to-worker compensation. Kate Gibson, CBS News, "CEOs rake in 940% more than 40 years ago, while average workers earn 12% more," 14 Aug. 2019 To offset anticipated increase in consumer prices, the plan cuts personal income tax rates by 0.25 percentage points for the lowest three of the state’s four tax brackets. Mike Rogoway, oregonlive.com, "Manufacturers abandon effort to repeal new $1 billion Oregon business tax," 16 July 2019 There were hikes in the customs duty on gold, an increase in the levies on petrol and diesel, and higher disinvestment targets were set, while income tax rates mostly remained unchanged. Pramod Mathew, Quartz India, "In a quest to remain fiscally prudent, India’s budget stuck to the minimum," 6 July 2019 Teammates, coaches, geography, weather, culture, endorsement opportunities and state income tax rates all vary by team. Michael Mccann, SI.com, "Kawhi Leonard vs. Nike: Analyzing the Raptors' Star's Logo Lawsuit," 4 June 2019 In addition, a reporter also reviewed the income tax returns or pay stubs of several defendants, including Carrie Barrett, a clerk at Kroger who was profiled in the first MLK50-ProPublica story. Wendi C. Thomas, ProPublica, "Stop Suing Patients, Advocates Advise Memphis Nonprofit Hospital System," 30 July 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

12 Sep 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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