Income Tax – Why Do We Pay Federal Income Tax

Income Tax Return

Although there are many different types of taxes– sales tax, payroll tax, property tax, etc.– most people are referring to income tax when they use the broad term “taxes”. This is likely because income taxes are the federal government’s primary source of revenue “Income”, as defined by the IRS, can take on many forms such as salaries, rents, royalties, interest dividends, business earnings, unemployment compensation and even lottery winnings.

Why do you pay a federal income tax?

Paying federal and state taxes is a stipulation expressed in the 16th Amendment to the Constitution, but why is this civic duty so important? According to the Congressional Budget Office (CBO), income taxes made up $1.1 trillion of the $2.3 trillion received by the government in 2011– nearly half of the budget.

Social insurance (payroll) taxes made up $819 billion, followed by corporate taxes at $181 billion, and other (federal reserve earnings, excise taxes, etc.) with $212 billion. Without income taxes, the financial foundation of the country would collapse.

Who pays income tax?

Everyone that received any income must pay taxes. This includes income from a small business, salaries, stocks or capital gains, and gambling income. Research from the Tax Foundation further illustrates that government taxing and spending policies redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent.

Although income taxes serve an important social and economic purpose, you want to make sure you’re only paying the portion you truly owe. Formal income tax preparation is essential for achieving this goal, and our trained tax professionals at H&R Block can help you get there.

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