Texas is tax free
This is how US income tax works
Income tax in the USA is independent of the state, but is levied individually by different states and municipalities. It wasn't until 1913 that American income tax was passed at the federal level.
The background was violent conflicts in the Senate between individual states. Some participants found this tax unconstitutional.
Therefore an additional article was written in the constitution and thus the problem was solved for the time being. However, various parties are still engaged in heated battles over this to this day. In addition to natural persons, profit-oriented companies are also subject to a so-called federal income tax.
US Income Tax: Contribution Rates
The so-called progression applies to natural persons. That means the more you earn, the higher the tax rate. This is how it works in Germany, too, but the implementation is a little different. U.S. income tax ranges from 10% to 39.6% depending on income and allowances.
In contrast to Germany, a step-by-step calculation is used to determine the US income tax. This means that all incomes are broken down. For example, if someone earns $ 30,000, the first $ 9,275 will be offset at 10% and the remaining $ 20,725 will be offset at 15%. For an income of US $ 40,000, amounts from US $ 37,650 are also calculated at 25%.
The tax base is the gross income. Some items for income tax can be deducted from this. This includes interest income from government bonds, life insurance payments due to the death of the insured person and employer contributions to the health insurance company.
Further items can be deducted from the gross income calculated in this way. These include maintenance payments, moving costs and payments into pension and health accounts.
Further deductions as lump sums or individual contributions can be partially claimed. Similar to German laws, you can reduce taxes if you have people living in your own household who do not have their own income. At the end of all deductions, you get the US income tax base.
Assessment base for federal income tax for companies
The assessment basis for federal income tax for companies is based on the company's worldwide turnover, minus normal business expenses. Larger expenses have to be written off over several years. In addition, expenses in the area of research and development can be deducted from the taxes to be paid.
In addition, US corporate income tax allows certain deductions for hiring people in need. In addition to income tax, company owners may also have to tax dividend payments.
Due to the double taxation that this entails, the US Senate passed a new type of company in 1986, the so-called "S Corporation". In this, the company profits are proportionally distributed to the owners (shareholders) and taxed individually.
Income tax most important tax for the US federal budget
Essentially, American income tax is levied on all worldwide income of all American citizens and all American based companies. Of course, there are a number of double taxation agreements in place to avoid double tax payments.
The income tax of employees is deducted directly from the salary as so-called withholding tax and transferred directly by the employer to a department of the Ministry of Finance.
Companies and freelancers are obliged to estimate their income tax and pay it in independently on a quarterly basis. According to the law, taxpayers must submit their tax return by April 15 of the following calendar year.
Income tax is the single most important tax on the US federal budget today. Only 7 states do not levy income tax. Income taxes must be paid not only for the federal government, but also for states and municipalities. The states that do not have personal income tax are Florida, Alaska, Texas, Nevada, South Dakota, Wyoming, and Washington.
Tax progression: Saving taxes through spouse splitting If the income levels of both spouses differ significantly, a lot of money can be saved through spouse splitting. > read more
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