Personal Income Tax (PIT)

Personal Income Tax (PIT) is a tax levied by federal, state, or local governments on the income earned by individuals, including wages, salaries, interest, dividends, and other earnings. It is typically calculated on an annual basis and is progressive in nature, meaning that tax rates increase as income levels rise. PIT is a major source of revenue for governments and is used to fund public services such as education, healthcare, infrastructure, and national defense.

Taxpayers are generally required to file annual tax returns to report their income, claim deductions and credits, and determine the amount of tax owed or refund due.

Key Facts

• Taxable Income: Applies to earnings such as wages, tips, interest, and investment returns.‍
• Progressive System: In many countries, including the U.S. and Canada, tax rates increase with income.‍
• Withholding: Employers typically withhold PIT from employee paychecks and remit it to the government.‍
• Filing Requirement: Individuals must file annual tax returns to reconcile withholdings and claim credits or refunds.‍
• Deductions and Credits: Taxpayers may reduce their liability through deductions (for example, mortgage interest) and credits (for example, education credits).

1. Who has to pay Personal Income Tax?

Most individuals with taxable income, including employees, self-employed workers, and investors.

2. How is Personal Income Tax calculated?

By applying the appropriate tax rates to taxable income after deductions and exemptions.

3. What is the difference between gross income and taxable income?

Gross income is total income earned, while taxable income is what remains after deductions and exemptions.

4. What happens if I don’t pay my PIT?

Penalties, interest charges, and possible legal consequences can result from non-compliance.

5. Can PIT be refunded?

Yes, if your employer withheld more than you owed, you may receive a tax refund after filing your return.