An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

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.

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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.

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: