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Rise Glossary

What is a Federal Income Tax?

Federal income tax is a tax imposed by the federal government on the income of individuals, partnerships, and corporations. The tax is based on a progressive rate schedule, which means that the tax rate increases as the amount of income increases. The tax rate schedule is published annually by the Internal Revenue Service (IRS) and is adjusted for inflation.

Individuals are required to file a federal income tax return each year, typically by April 15th, and they are required to report their taxable income, which includes wages, salaries, tips, and other forms of compensation. They are also required to report any other income they received such as interest, dividends, and capital gains.

The tax code allows for certain deductions and credits to be taken to lower the amount of tax that is owed. Common deductions include charitable contributions, state and local taxes, and mortgage interest. Tax credits are subtracted directly from the amount of tax owed. Examples of tax credit are, the Earned Income Tax Credit (EITC) for low-income taxpayers, the Child Tax Credit and the American Opportunity Tax Credit (AOTC) for college expenses.

It's important to note that Federal income tax is separate from state and local taxes, which may also be imposed on income. Additionally, the tax laws and rates are subject to change, thus it's advisable to keep updated with the most recent laws and regulations.