what is income tax

Income tax is a tax imposed on individuals or entities in respect of the income or profits earned by them. It is computed as the product of a tax rate times the taxable income, and taxation rates may vary by type or characteristics of the taxpayer and the type of income. Income tax is used to fund public services, pay government obligations, and provide goods for citizens. Taxpayers must file an income tax return annually to determine their tax obligations. The federal government and many states, as well as local jurisdictions, levy their own income taxes. The individual income tax is a tax levied on the wages, salaries, dividends, interest, and other income a person earns throughout the year. The federal government in the United States uses a progressive income tax system in which your tax rate increases as your income increases. This produces a series of tax brackets in which different blocks of your income are taxed at different rates.