Definition - Income Tax

The income tax definition includes many variables; it is based on where people live, how much they earn and what credits and deductions they might be eligible for. This annual levy is charged against personal and corporate income by the federal government. The levy may also involve state income tax, depending on a state of residence of operation. A person, or corporation’s, unique income tax definition can vary from year to year based on earnings and deductions. Money collected by government agencies is used for operational and program expenses.

Figuring Out How Much Is Owed

The federal income tax definition will depend on a number of factors. To determine the exact amount owed, the Internal Revenue Service, and state agencies, require individuals to file an income tax return each year. This return reviews a number of factors that determine the tax liability of that individual. The factors include:

• All forms of income
• Previous tax payments made
• The number of dependents
• Any eligible deductions
• Any eligible credits

The income tax return definition is based on the adjustable gross income of a single taxpayer, couple or corporation. This income tax definition is arrived at based on the above input and is used to determine tax liability.