Income Tax Season
During tax season, which runs from January through April 15th, often known as “Tax Day,” all workers are required to report all money earned during the previous year from both employment and investments. By the end of January, employers are required to provide all employees with W-2’s, official tax forms that report total earnings and all payroll deductions, which include federal and state income taxes. People who receive income without paycheck tax deductions must report these earnings on a form called a 1099. Taxable income is determined by subtracting the standard deduction amount, or non-taxable income, from each person’s total earned income. Taxable income is also often reduced by claiming deductions, which can be determined using worksheets included with tax forms. These tax forms, which earners must fill out during tax season, are usually referred to as the 1040 tax forms. They come with a chart that shows how much each individual actually owes the government based on his/her taxable income. If the amount withheld the previous year from paychecks is greater than this number, the government refunds the difference in the form of a tax return. However, if the amount of a person’s withheld income taxes is lower than what the 1040 forms and charts reveal is owed, he/she must pay owed taxes to the INS (Internal Revenue Service).
WHERE DOES ALL THE MONEY GO?
As the government’s largest source of income, income tax has historically gone to a wide variety of sources. Currently, about half of federal income taxes go towards military and defense spending. The other half is almost entirely used towards paying interest on the government’s national debt. What’s left over is used for programs like unemployment insurance, food and nutrition programs, housing assistance, and education loans, and even NASA.
State income taxes are generally used much in ways that produce results Americans can actually see, but vary hugely from state to state. In most states, income taxes help fund roads and most of the other services Americans benefit from everyday, excluding education, which is funded by property taxes. Some states, however, do fund public education partly using income tax dollars.
In short, because income taxes are the federal government’s largest source of revenue and approximately 15-20% of each state’s revenue, they help keep the United States running!