Federal Income Tax
What is federal income tax (FIT)?
Federal income tax (FIT) is levied by the federal government on the annual earnings of individuals, businesses, trusts, and other legal entities. Not all earnings are subject to the federal income tax—only those that fall under the category of taxable income (both earned and unearned).
While taxable income amounts will vary due to filing status, all the following earnings are subject to federal income tax:
- Wages and salaries (including those from self-employment)
- Bonuses and cash gifts from employers
- Tips and commissions
- Unemployment benefits
- Canceled debts
- Business income
- Gambling income
- Capital gains
Who must pay federal income taxes?
US citizens and permanent residents working in the United States who earn more than a certain amount must pay FIT taxes. Additionally, all businesses (with few exceptions) pay federal income taxes, as do trusts and other legal entities.
Who is exempt from federal income tax?
Exempt means an individual or organization isn’t subject to FIT. To qualify as exempt, a person must not have owed FIT in the previous tax year and must not be expected to owe FIT in the current year.
Certain organizations are exempt, and individuals (like certain international students, those with certain medical conditions, those with dependent children who qualify for the Earned Income Tax Credit and those whose sole income is Social Security) may have to pay less or no FIT.
What are the federal income tax brackets?
Someone’s income tax rate is dependent on the taxable income earned. For 2025, there are seven income tax brackets:
What is FIT withholding?
Tax withholding is the amount of federal income tax withheld from a W-2 employee’s paycheck. Generally, FIT taxes are used to pay for expenses from national defense to transportation and education improvements. The amount that is withheld from an employee’s wage depends on:
- The amount the employee earns
- And the information provided on a W-4 Form.
How does the US government spend federal income taxes?
Like all governments, the US government uses tax revenue, including federal income taxes, to fund programs and services including (but not limited to):
- National defense
- Law enforcement
- Pensions and benefits for government workers
- Food and housing assistance programs
- Improvements in education, health, agriculture, and public transit
- Emergency disaster relief
- Interest on the national debt
State vs. federal income taxes
State taxes pay for local services and programs, while FIT taxes pay for national initiatives.
State income tax rates vary by state.
As of 2025, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming don't have state income tax.
How to file federal income taxes
Filing federal income taxes is simple, but employees will need forms and receipts to prove the amount they have earned. For example:
- A W-2 form from each employer
Any earning or interest statements—like 1099 forms or 1099-INT forms
- Receipts for any charitable donations, mortgage interest, state and local taxes, medical and business costs and more.
Employees will also need to select their filing status, which dictates how they would like to file their FIT taxes.
You can find out more information on filing federal income taxes here.
When are FIT taxes due?
For most US citizens, their tax return is due April 15th every year. With this in mind, the automatic extension date would be June 15th. If the due date lands on a weekend or legal holiday, it’s delayed until the next working day.