Federal Income Tax (FIT) is a tax levied by the U.S. federal government on individuals' and businesses' earned income. It is the primary source of revenue for the federal government and is used to fund national programs such as defense, education, transportation, social services, and infrastructure. The tax is progressive, meaning the rate increases as income rises, and it is collected by the Internal Revenue Service (IRS) through withholding, estimated payments, or annual returns.
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Key Facts
- Applies to Both Individuals and Businesses: Individuals file Form 1040, while corporations file Form 1120, among others.
- Progressive Tax Brackets: FIT has seven tax brackets (as of 2025) ranging from 10% to 37%, depending on income level and filing status.
- Withheld from Paychecks: Employers withhold FIT based on Form W-4 provided by employees and send payments directly to the IRS.
- Taxable Income Includes:
- Wages and salaries
- Tips and bonuses
- Business profits
- Investment income (for example, interest, dividends, capital gains)
- Retirement income
- Deductions and Credits Reduce Liability: Taxpayers may reduce their taxable income through standard or itemized deductions, and tax credits can directly lower what’s owed.
- Enforced by the IRS: Noncompliance can result in penalties, interest, or legal action.
- Annual Filing Required: FIT returns are due by April 15 of each year (or the next business day if it falls on a weekend or holiday).
1. What is federal income tax used for?
FIT helps fund national programs like Social Security, Medicare, defense, infrastructure, and education.
2. How is federal income tax calculated?
It’s based on gross income minus deductions, multiplied by the tax rate that applies to your income bracket.
3. Why is FIT withheld from my paycheck?
Employers are legally required to withhold estimated tax on your behalf to help you meet your yearly tax obligation.
4. What determines how much FIT is withheld?
Your W-4 form, including your filing status, income, and claimed dependents, helps employers calculate the correct amount.
5. Do I get a refund on federal income tax?
Yes, if you overpay during the year through withholding or estimated payments, the IRS will issue a refund after processing your return.
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