The United States of America imposes progressive tax on all the taxable income of U.S individuals worldwide. The first federal tax was imposed during the civil war, then again in the 1890s and later on the sixteenth amendment was ratified in 1913. Nowadays, income taxes are imposed on the U.S individuals under these constitutional provisions and various sections of subtitle A of the Internal Revenue code of 1986. Individual or personal income tax is levied on the total income of the U.S citizens on a pay –as- you- earn basis and corrections are made after the end of the tax year. These corrections include payments to the government for the tax payers who fail to pay by the end of the tax year and tax refunds from the government, for those who have overpaid (Prante, 2009).
The tax payers are required to list and submit all the deductions that should be deducted from the total tax in order to get the payable tax for every individual. In the year 2008, the standard deductions were $5450 for single persons, $8000 for heads of household, $10, 900 for married filling jointly or qualifying widower, and $5450 for married filling separately. Old tax payers of 65 years and above and the blind are entitled to an additional standard deduction of $1250. There are some major items that were deducted in the year 2008. They include state local and foreign income, and property taxes, charitable contributions, employee moving expenses, medical expenses, mortgage interests and some miscellaneous deductions which were deductible only by which cumulatively they exceeded 2% of adjusted gross income.
Individual taxable income include the unemployment compensation, wages and salaries, tips and gratuities, interest, dividends, annuities and rents. 85% of the individual Social Security benefits are also taxable if the recipient’s income exceeds a base amount and certain other types of income. Items exempted from taxation included public assistance benefits and interest on exempt securities. Alimony paid, penalties on early withdrawal of savings, payments to an IRA are done in order to obtain the adjusted gross income. There also some personal exemptions for taxpayers, their spouses and dependants. A tax payer receives no exemptions if he/she can be claimed as dependent to another taxpayer’s returns.
The tax payers can also reduce their taxable amount by claiming the benefit of certain tax credits. This is because in the U.S, each dollar of credit cancels a dollar of tax liability. These credits include an earned Income Credit by certain low income families. Another credit is that for Child and Dependent Care Expenses which caters for the amount paid to care for a qualifying child or other dependent so that can work or look for work. According to the data released the Internal Revenue Service concerning the calendar year 2007, the economy of the United States remained healthy and continued to grow. Individual income tax collection in that year increased substantially but the overall average effective tax rate did not change. The United States of America government uses a progressive method to collect income tax from its citizens. This method ensures that the impact of tax to the tax payers is uniform to income earners regardless of the amount each individual pays as tax depending on his/her earnings ( Prante, 2009).
Corrections are done at the end of every tax collection year in order to ensure that all the errors and rectified all the tax payers have submitted their payments fully and those who have over paid refunded. Tax payers are allowed deductions depending on their needs and this ensures that tax is levied only to the people who are in a position to pay the total amount without straining their other needs. Items and income that are meant for the good of the whole community are exempted from taxation in order to ensure that it is only the earned income that is taxed. The U.S government has been able to collect substantial amount of money from the individuals through progressive taxation without much impact to the taxpayers although tax has greatly increased in the recent past. Therefore, federal individual tax is imposed in a well structured manner in order to ensure equality among the tax payers.
Prante. G, (2009), Summary of Latest Federal Individual Income Tax Data, Fiscal Facts publishers. Retrieved on 13th October 2009 fromhttp://www.heartland.org/policybot/results/25866/Summary_of_Latest_Federal_Individua