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An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

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Federal Income Tax (FIT)

What Is the Federal Income Tax?

The federal income tax is a tax on annual earnings for individuals, businesses, and other legal entities. All wages, salaries, cash gifts from employers, business income, tips, gambling income, bonuses, and unemployment benefits are subject to a federal income tax. 

The federal income tax is the largest source of revenue for the federal government. All states except for Washington, Texas, Florida, Alaska, Nevada, South Dakota, and Wyoming withhold state income tax in addition to federal income tax. State income tax rates vary from state to state. 

What Are the Federal Income Tax Brackets?

For 2020, there are seven income tax brackets. Your income tax rate is dependent on the amount of taxable income you earn because federal income tax is built on a progressive tax system.

  • 37% for incomes over $518,400 for individuals and $622,050 for married couples filing jointly

  • 35% for incomes over $207,350 for individuals and $414,700 for married couples filing jointly

  • 32% for incomes over $163,300 for individuals and $326,600 for married couples filing jointly

  • 24% for incomes over $85,525 for individuals and $171,050 for married couples filing jointly

  • 22% for incomes over $40,125 for individuals and $80,250 for married couples filing jointly

  • 12% for incomes over $9,875 for individuals and $19,750 for married couples filing jointly

What Does the U.S. Government Use Federal Income Taxes For?

Federal income taxes are used to provide programs and services intended to benefit taxpayers. These include:

  • National defense

  • Veterans and foreign affairs

  • Law enforcement

  • Food and housing assistance programs

  • Interest on the national debt

  • Pensions and benefits for government workers

  • Improvements for education, health, agriculture, and public transit

  • Emergency disaster relief

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