There are many taxes in the United States but we will take a look at the major ones which are large sources of the federal revenue.
INDIVIDUAL INCOME TAX
Personal income tax is one of the Major Taxes heads in the United States. According to different levels of collection, it is divided into;
·Federal Income Tax
·State Income Tax and
·Local Income Tax
Among them, Federal Income Tax is the mainstay.
In the classification based on the level of collection, the federal personal income tax belongs to the Federal Tax. The common Federal tax also includes the Medicare Tax, Social Security Tax, and the Federal Income Tax.
Regarding State Income Tax, seven states in the United States do not have this tax. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Regardless of the status of the individual income tax collection, as long as there is income, you need to pay this part of the tax. Students holding F-1 visas also have to pay taxes as long as they have scholarships. F-1 visa is a non-immigrant visa for people seeking to study at a university, college, high school, seminary or any form of learning platform in the United States.
The payment status of personal income tax is divided into five forms, they are;
Married filing joint
Married filing separately
Single filing
Head of household filing and
Qualifying widow or widower with dependent child;
It is required to file these 5 forms.
CORPORATE INCOME TAX
The corporation here refers to a regular corporation which is called C corporation. It is referred to as regular because most companies are treated as C corporations for U.S. federal income tax purposes. A C corporation under the United States income tax law refers to any corporation that is taxed separately from its owners. The common name for corporate income is “profits”.
Corporate income taxes the third largest federal government tax revenues after the federal individual income tax and payroll tax which provides funds for social security and Medicare. The corporate (company) income tax is levied on the federal level.
Corporate income tax is levied on domestic legal persons and foreign legal persons. Domestic legal persons refer to legal persons of companies incorporated in the United States in accordance with the laws of the United States Federal Government and states, except for foreign legal persons.
Note that as long as it is a company incorporated in the United States, regardless of whether the legal person works in the United States or whether its company location is set up in the United States, the company’s legal person is considered a domestic legal person!
The domestic legal person pays tax on worldwide income, while the foreign legal person pays tax on the income from the company’s trade and operations in the United States. For the United States, a crooked fruit company with crooked nuts needs to pay taxes as long as it generates operations that require taxation in the United States.
The scope of corporate income tax collection includes direct taxes imposed by a jurisdiction on the income or capital of corporations or legal entities but is not limited to the company’s operating income, capital gains, dividends, rent, royalties, labor income, etc. The tax rate algorithm adopts over-accumulation. The corporate tax rate in the United States is expected to reach 21% by the end of year 2020.
FEDERAL INSURANCE CONTRIBUTIONS ACT (FICA) TAX
After talking about the two major income taxes, let us take a look at another important source of federal tax revenue, the social insurance medical tax FICA tax. The FICA tax is composed of social security tax and medical care tax, which is a type of federal tax according to the level of collection. It is a United States federal payroll contribution directed towards both employees and employers to fund social security and Medicare.
In fact, this tax is a special tax levied by the US federal government as a source of funds for old age, survivors, disability, and medical insurance, including federal insurance tax, railway company retirement tax, federal unemployment tax, individual owner tax, etc. Employers and employees are taxpayers, and self-employed persons are also tax collectors.
The tax base for employees is the total annual wages, including bonuses, handling fees, and wages in kind;
The tax base for employers is the total wages of their employees. Proportional tax rates are adopted. These tax rates are adjusted yearly. Also, wages exceeding the prescribed maximum limit are not levied.
PROPERTY TAX
Property tax is a tax levied by the US state and local governments on natural and legal persons who own real or movable property in the United States, especially real estate and other properties.
Property tax has always been the most important source of revenue for local governments in the United States, and it accounts for more than 80% of local government tax revenue. The federal government does not levy property taxes. They are levied by either state government or local civic bodies. They do not belong to the scope of federal tax. Each state in the United States has independent legislative power over state taxes such as property taxes, so the rules for taxable property vary from state to state.
In general, the states of the United States divide property into three categories:
Movable property – Movable property is any tangible property other than real property, such as aircraft, vehicles, ships, etc.
Real property – Real estate includes land and permanent buildings and structures on the land.
Intangible property –Intangible property refers to intangible financial assets, such as those in the stock market and bond market investment.
All states in the United States impose property taxes on real property, and most states impose property taxes on movable property. In addition, the tax law stipulates that property of governments at all levels, as well as property owned by religions, charities, and educational institutions are exempted from property tax. Many local governments also provide for the reduction and exemption of property tax on real estate for the elderly.
ESTATE AND GIFT TAX
Estate tax is also called inheritance tax. The US federal inheritance tax is the tax paid to a person who
money or property of a citizen who has died while the estate tax is the levy on the estate of a person who has died. The federal estate tax adopts the general estate tax system, and the taxpayer is the executor. The unified credit means that the tax law allows each taxpayer to deduct a certain amount of credit from the amount of estate tax payable. The current federal estate tax rate in the United States is 40%.
Gift tax takes the total amount of donated property as the tax amount, and the taxpayer is the gift of property. According to the IRS, a gift is being made when you give property (including money), without expecting to receive something of at least equal value in return. Gifts have been taxed since 1924 and in 1976, taxation legislation combined the estate tax and the gift tax into a unified levy, and the same progressive tax rate table and unified credit amount apply to the transfer of property before and after the deceased. Although inheritance tax is levied on personal assets and inheritance after death, the gift tax given during the taxpayer’s residence period is applicable to the gift tax. The gift tax can prevent individuals with large estates from handing over all assets to their heirs during their lifetime, to avoid levying inheritance tax.
The federal inheritance and gift tax accounts for only about 1% of the total federal tax revenue, and is not an important source of financial revenue for federal government management.
EXCISE TAX
Excise tax can also be called consumption tax. Taxpayers should not confuse excise tax with sales tax. Excise tax and Sales tax are two different concepts.
Excise tax is a federal tax and it is an indirect tax on the sale of specific goods or services such as fuel, tobacco, airline tickets, alcohol and other goods and services. This means that the tax is not directly paid by individual consumers. Instead, the US Internal Revenue Service (IRS) levies taxes on producers or merchants and passes them to consumers by including them in product prices.
Governments at all levels: The federal, state and local governments all levy excise tax. These taxes are divided into two categories:
Ad valorem taxes – The ad valorem consumption tax is a fixed percentage rate that is evaluated for specific goods or services.
Specific taxes – Specific taxes are fixed dollar amounts that apply to certain purchases.
At a higher level, when the collection level is the federal government, the tax payments include military expenses, health care, interest on non-military liabilities, anti-poverty, education, training and social services, administration and law enforcement, housing and community development, environment, Energy and science, transportation, trade and agriculture, international affairs, etc., although the details are not as specific as given by the local government, but each item will also specify the amount.
Other important taxes in the United States include;
Pentagon and military – The average taxpayer donates $240 to Lockheed Martin (a global security and aerospace company that engages in the research, design, development and other advanced services) through the Department of Defense, more than double the $112 taxpayer’s contribution to the child nutrition program (including school breakfast and lunch). The average taxpayer paid $190 for all diplomatic and foreign aid, while the Pentagon and the military paid $4,328.
Energy and Environment – On average, taxpayers donate $39 to the Environmental Protection Agency. Under President Trump’s 2019 budget, the budget was reduced by 35% (or US $2.9 billion).
Education – The average income of taxpayers is only $580, including K-12 education, higher education and vocational training.
Income support – The taxpayer provides a $426 income support plan for veterans.
Medical insurance – Taxpayers provide an average of $3,533 for Medicare, and provide insurance for one-third of Americans.
Government – The US Internal Revenue Service pays an average of $79, which is equivalent to a 0.5% service charge on income tax.
As an individual, the taxes paid can be roughly classified as federal personal income tax, state personal income tax these are 3 types of taxes that are MAJOR TAXES. Of course, there are other types of taxes for different situations so we should all be familiar with the purpose for each.
