Global HR Glossary

What is federal income tax?

Federal income tax is the taxation imposed by the IRS on the annual earnings of individuals, corporations, trusts, and other legal entities. This tax is the primary source of revenue for the U.S. federal government. 

Implications and structure of federal income tax 

Federal income tax features a progressive rate structure, which means the rate increases as the taxable amount increases. It encompasses:

• Income Types: Taxes wages, salaries, investments, and other forms of income.
• Progressive Tax Rates: Imposes higher rates on higher income brackets to ensure fairness in the tax system.
• Filing Requirements: Most entities and individuals must file annual tax returns detailing income and taxes paid. 

This tax system supports various federal programs, including infrastructure, defense, education, and social services.