About U.S. Personal Tax

The U.S. individual income tax is a tax collected by the federal and state governments. It is one of the main sources of revenue for the U.S. government, used to fund government operations, social welfare, and public services. Here is some basic information about U.S. individual income tax.

Taxpayers

U.S. citizens, green card holders, and individuals who meet certain residency standards in the U.S. are considered tax residents and must calculate and pay taxes on their worldwide income.

Federal and State Individual Income Taxes

U.S. individual income tax is divided into (i) federal individual income tax and (ii) state individual income tax. The collection methods for state individual income tax vary by state, and not all states collect individual income tax. Federal individual income tax is collected by the federal government, while state individual income tax is collected by each state government.

Tax Filing

All U.S. residents must file a tax return with the federal government every year, reporting their income and taxes paid for the previous year. When submitting the tax return, residents must calculate their taxable income. If the taxes paid are less than the taxable amount, they may need to pay additional taxes; conversely, if the taxes paid are more than the taxable amount, they may receive a tax refund.

Tax Rates

The U.S. federal government sets different tax rates based on the taxpayer's income level. Rates range from 10% to 37%, with higher incomes being taxed at higher rates. State individual income tax rates also vary by state.

Filing Status

Tax filing status is a classification used to determine the applicable tax rate and tax benefits for individuals when filing taxes. U.S. individual tax filing statuses include:

• Single: For unmarried individuals or those separated from their spouse.

• Married Filing Jointly: For married couples choosing to file taxes together. In this status, the couple combines their incomes and deductions.

• Married Filing Separately: For married couples choosing to file taxes separately. In this status, each spouse files separately, calculating their own income and deductions. Sometimes, couples choose to file separately to avoid joint liability that may arise from filing jointly.

• Head of Household: For single individuals who qualify to provide the main financial support for a household.

• Qualifying Widow(er) with Dependent Child: For individuals who have lost their spouse within the past two years, have a dependent child, and have not remarried. In this status, the individual can file as if married filing jointly and enjoy certain tax benefits for a limited time to help ease the financial burden after losing a spouse.

The IRS provides a simple test to help taxpayers determine their filing status: What Is My Filing Status? | Internal Revenue Service (irs.gov).

Tax Deductions and Tax Credits

Tax deductions and tax credits are two different types of tax benefits.

• Tax Deductions: These reduce the amount of income subject to tax. When you have eligible expenses or qualifications, you can list these as deductions to reduce your taxable income. Common tax deductions include:

• Standard deduction

• Mortgage interest deduction

• Student loan interest deduction

• Charitable contributions deduction

• Medical expenses deduction

• Tax Credits: These directly reduce the amount of tax owed. Tax credits are a more direct way to reduce your tax burden. Common tax credits include:

• Earned Income Tax Credit

• Child Tax Credit

• Child and Dependent Care Credit

• Renewable Energy Tax Credit

Filing Deadlines

The deadline for filing federal tax returns in the U.S. is usually April 15 each year. If taxpayers need more time to complete their tax returns, they can apply for an extension until October 15, but must estimate and pay any owed taxes by April 15. The deadlines for state individual income tax returns vary by state.

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