What is federal income tax?

Federal income tax is used by the government to collect taxes from individuals and businesses that earn income during the year. This form of taxation includes any income that is earned from work, business or investments. The tax is levied by the Internal Revenue Service.

Federal income includes a broad definition of taxable income, and it is the most commonly used form of federal taxation. The federal income tax uses a specific tax rate that increases as income increases. The tax is applied to the annual earnings of individuals, businesses, trusts, estates and legal entities. Taxpayers must file tax returns each year, and there are specific deductions or credits that help reduce tax.