The IRS & How Federal Income Tax Works

The IRS is the abbreviation for the Internal Revenue Service. It is the United States governmental agency that is responsible for collecting taxes at a State and Federal level. There are people who are anti tax who claim that the IRS was not created by a statute and there is no way that you can sue the IRS and that they are not a federal agency.

But the IRS is still in charge of collections of state and federal taxes on money that you have earned for the previous year. Every April 15th, last minute filers scramble to turn in their tax returns in order to avoid paying a penalty.

What is covered by the IRS

The IRS not only covers residential revenues but they also oversee business taxes, property taxes, estate taxes, trust taxes. No matter how you make the money, you can earn the money or by winning the money via the lottery ,game shows or casinos. You have to pay taxes on it. When you are employed your employer will take out a certain amount of money that is based on your weekly income. At the end of the fiscal year you may have paid over the amount you should have or not have paid enough. This will determine whether you get a refund or you owe the government money.

What is Purpose of the IRS

Federal income tax as a whole is created in order for the entire country to pay taxes on the money that they make. Each state has their own tax laws and the residents of those states will follow those rules but federal tax laws must be followed by everyone. The laws and regulations apply to everyone living in the country. The tax laws in general are a bit tough to understand but the basic idea of the federal income tax is this, when you work every week you get a paycheck, the money you make before taxes are called gross income. The federal government has a set percentage that is taken out of your check every week. This tax is taken and given to the government.

No matter what type of income you make it could be from ordinary income or income from what the government calls capital gains. The amount of taxes that is taken out is dependant on the marital status of the taxpayer, how many dependants they have and how much money they make. There is a federal tax calculator that the government goes by. The marginal tax rate can vary from ten percent to thirty five percent. All depending on what tax bracket you are in will determine how much gets taken from your income.