Glossary of Human Resources Management and Employee Benefit Terms
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.
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
Federal income taxes are used to provide programs and services intended to benefit taxpayers. These include:
Veterans and foreign affairs
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