USA Tax
March 7, 2009
Taxes are paid by the citizens and residents of USA to federal, state, and local governments. Taxes are used to pay for services which are provided by the government. The different types of taxes include income tax, sales tax, and property tax.
Taxable income is money that you receive from wages/salary, self-employment, investments, and sale of property. Income tax is basically tax paid on income to federal, state, and sometimes local governments. Most people pay income tax by having money deducted from their salary. The amount of income tax payable depends on the amount earned. Income tax rates are higher for people who make more money. So who ever earns income, lives in the United States, and meets certain criteria needs to file tax returns.
Income tax is collected by the Internal Revenue Service (IRS) which is a federal agency. Taxpayers have to file a federal “income tax return” in Form 1040 with the IRS each year. The tax return informs the government about how much you earned and the amount in taxes that was taken out of your salary. If too much was deducted from your paycheck, you will be given a refund. If less money was deducted from your paycheck, you will need to send a payment to the IRS.
Social Security and Medicare Taxes are federal taxes which are deducted from your salary. Social Security offers benefits for retired workers and their families; some disabled workers and their families; and some family members of deceased workers. Medicare Taxes cover medical services for most people over 65 years of age. Basically, you need to work a total of 10 years during the course of your life in order to get Social Security retirement benefits and Medicare benefits. You may not need more than 10 years of work to be entitled to disability benefits or for your family to get a survivors’ benefit calculated on the basis of your earnings.
Sales taxes are local and state taxes. These are added to the purchase cost of certain items. Sales taxes are calculated on the cost of the item. Sales taxes help pay for facilities provided by the state and local government, like roads, the police department, and the fire department.
Property Taxes are state and local taxes levied on your house and land. Property taxes basically help to support local public schools and other facilities and services.
Another tax is the transfer tax which generates approximately 1.5%, which is $30 billion, of the federal government’s annual revenue which is $2 trillion. It comprises the estate tax, the gift tax and the generation-skipping transfer tax (GSTT).
The gift tax is levied on the transfer of wealth made during the transferor’s life whereas the estate tax is collected on transfers that have been made after the transferor’s death. The GSTT is a tax which is in addition to the gift and estate taxes and is collected basically on transfers made during one’s lifetime or after one’s death to individuals who are separated by more than one generation from the transferor, for instance, from a grandfather to a grandson. Normally, the transfer tax liabilities are paid by the transferor or the transferor’s estate. A transfer tax paid by the transferor when the liability is actually due from the recipient is also considered a taxable gift.
Every individual is granted a Unified Credit that exempts estates under $1 million. Individuals are also granted an annual exclusion amount that exempts total gifts during the year to an individual up to the annual exclusion amount. When the transferor does not choose to pay the gift tax on the value of gifts that total more than the annual exclusion amount, the individual is considered to have used part of his Unified Credit.
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