We all shudder when someone mentions the April 15th deadline for filing our federal income tax forms. The many rules and regulations of the Internal Revenue Service can be daunting. Take our quiz and find out how much you really know about federal taxes.
Though the United States government collected over $2.1 trillion in taxes in 2009, there was still a budget deficit of over a trillion dollars, since government spending came to over $3.5 trillion for that same year.
Federal taxes are used to fund many services that benefit the citizens of the United States. They also pay for governmental regulatory activities and social welfare programs.
Your federal income tax is actually withheld from each paycheck you earn throughout the year and deposited in government accounts.
In the case of U.S. federal taxes, citizens are taxed progressively according to how much they earn. They may be entitled to certain exemptions designed to alleviate the tax burden for those who have children, health issues and business setbacks.
The first federal taxes collected from the people of the United States were tariffs on imported goods and sales tax on certain items, known as excise taxes.
The first U.S. federal income tax was established in 1862 to fund the Civil War, but was abolished soon after the war ended. A commissioner of Internal Revenue was appointed to collect the tax.
The 16th Amendment, establishing a federal income tax, was ratified by 36 states in 1913. In 1914, the Bureau of Internal Revenue issued the first personal income tax form, the 1040.
To provide for U.S. citizens in their old age, President Roosevelt established the Federal Insurance Contributions Act (FICA) tax in 1935 to fund Social Security benefits.
The Victory Tax of 1942 established the first automatic withholding of income tax. Workers began to pay their taxes as they received their paycheck, which relieved the tax burden on both citizens and the federal government.
The tax table published by the IRS, which determines your tax bracket, delineates the amounts and percentages owed in federal taxes by each income level and each type of filer.
There are four types of filers for the purposes of paying federal income tax: single, married filing separately, married filing jointly or head of a household. The IRS defines your filing status as your condition on Dec. 31 of the tax year.
If your spouse didn't live with you for the last six months of the year and you're filing separate tax returns, you're "considered unmarried." If you are either unmarried or "considered unmarried" and a "qualifying person" lived in your home for more than half the year, you are entitled to file as head of household. "Qualifying persons" can be children or other relatives.
You do not have to file a federal income tax return if you did not earn a minimum amount of money for your age and filing status. There is an IRS table that helps you determine if you earned the minimum required amount and therefore need to file.
The 1040 federal income tax form helps you calculate how much money you earned in a given year and how much tax you owe. To calculate how much tax you owe, start with your total or gross income, deduct certain expenses to get a number called your adjusted gross income (AGI) and then subtract other deductions and exemptions to get your taxable income.
The major income category for most Americans is usually wages or salaries. Depending on whether you are a salaried employee, independent contractor or self-employed, you will need to provide certain forms to the IRS to verify your wages.
You are exempt from paying income tax on unemployment compensation up to $2,400 a person. You must pay income tax on all other income such as interest or dividends on stocks and CDs, profit from the sale of real estate or collectibles, alimony, pensions and trusts.
The deductions you can take when calculating your adjusted gross income (AGI) include alimony payments, self-employment tax, moving expenses, certain health care costs, student loan interest and tuition.
You may choose to take a standard deduction, which is a lump sum based on your filing status or you may choose to itemize your deductions. In the second case, you will need to submit receipts to the IRS for every qualifying expense.
If you are a business, the amount of income tax you pay depends, of course, on how much you earn, but also on how your business is structured. Businesses may be classified as follows: sole proprietorships, partnerships, C corporations, S corporations, limited liability companies (LLC) and nonprofit organizations.
If you are self-employed, you will have to pay self-employment tax to cover your Social Security and Medicare contributions. Since as a self-employed person you are both employee and employer, you must pay the full FICA taxes -- 15.3 percent of total income.