Federal Tax (Federal Tax)
Federal taxes are, as the name suggests, tax burdens imposed by the federal government. Federal income taxes on revenue are primarily used to pay for defense spending programs, foreign affairs spending, law enforcement costs, and to pay interest on the national debt. Of the various federal taxes, income taxes dominate. Primarily, these are the individual income tax and the Social Security Benefit Guaranty Tax, followed by the corporate income tax. Federal estate taxes, gift taxes, and excise taxes on goods make up a small percentage of total federal revenues. In 2004, for example, the proportion of total federal tax revenues was 43 percent for the personal income tax, 39 percent for the Social Security and welfare taxes, 10 percent for the corporate income tax, 4 percent for the excise tax on goods, and the remaining 4 percent for the estate tax, the gift tax, and other taxes (see Table I).
Individual Income Tax
The individual income tax, also known as the personal tax, is a major source of tax revenue for the federal government. It is based on the principle of pay-as-you-earn. There are four main ways to pay personal income tax: married couples filing jointly, married couples filing separately, heads of household filing, and single individuals filing individually. Individual income consists mainly of wages, annual salaries, tips, interest and dividend income, rents, royalties, trusts, gaming, gambling, estates, annuities, alimony income, investment income and income from business operations. The personal income tax is based on a progressive tax rate system, with rates divided into multiple tax brackets of 10%, 15%, 25%, 28%, 33% and 35% depending on income (see Table III).
Corporate Income Taxes
The corporate income tax, also known as the corporate tax, is the federal government's third-largest federal tax after the personal tax and the Social Security welfare tax. The tax is based on a progressive rate system with rates of 15%, 25%, 34% and 35%.
Each state, in order to expand employment levels and increase revenues, has introduced investment incentives for corporate entities, which are reflected in tax incentives. Generally speaking, the economic development promotion department of each state welcomes non-polluting or less-polluting, large investment amount, high technological content, and can provide local employment opportunities and drive one side of the economic development of the company entity in the business tax, income tax, raw material purchase tax, etc. will be given to a larger preferential exemption deduction amount. Take Georgia as an example, the state according to the macroeconomic development plan will be divided into four categories of areas, the first category for the least developed areas, and therefore the introduction of incentives are also the most favorable, the state provides that investment in manufacturing, communications, warehousing and distribution, research and development, information processing (such as data, information, software, etc.) and tourism companies, the provision of each job within five years can be credited 750 -$4,000 in corporate income tax. An additional credit of $1,250 per job is available for investments in port facilities that result in a significant increase in transportation throughput to and from ports within Georgia. If the investment is made in manufacturing or communications, has been in business for more than three years, and the amount invested is more than $50,000, the investment tax credit can be claimed at a rate of 1-5% of the amount invested, which can be used to offset the current year's corporate income tax due, and 3-8% of the tax credit can be claimed if the investment is made in the manufacture of recyclable equipment, pollution control equipment, or the conversion of military to civilian products. If the investor invests in recyclable equipment, pollution control equipment or military-to-civilian production enterprises, it can enjoy 3-8% tax credit. If the investor sets up the company's headquarters or branch office in the state, and the investment project creates at least 50 jobs, the investment amount is more than 1 million dollars, and the wages paid to the local employees exceed the average wage level in the area, the investor can enjoy the tax incentives for setting up the company's headquarters. If the state pays its employees more than twice the average local wage level, each job will be eligible for a credit of $5,000 per year against the company's corporate income tax for the current year. The credit is valid for five years. A portion of the cost of retraining a company's employees can be used to offset the company's corporate income tax for the year. In addition, a credit may be allowed for expenses incurred by a corporation in purchasing and constructing qualified child care facilities and space for its employees.
Social Security and Medicare Tax
The Social Security and Medicare Tax is also known as the Social Security or Federal Insurance Contributions Act (FICA) tax. The revenue from this tax is primarily used to provide benefits to retired and disabled workers and their dependents. The Social Security and Medicare taxes account for 15.3 percent of a taxpayer's paycheck, with employers and employees each contributing 50 percent, or 7.65 percent, of the total, with the Social Security and Medicare taxes accounting for 6.2 percent and the Medicare tax accounting for 1.45 percent. According to the U.S. tax law, in 2005, the collection of the Social Security Benefit Guarantee Tax applies to the first $90,000 of a taxpayer's income, that is, the portion of the paycheck that exceeds that amount ($90,000) is exempt from the Social Security Benefit Guarantee Tax, except for the Elderly Health Care Medicare Tax, which applies to all of the portion of the paycheck that is earned by the taxpayer. The Social Security tax is withheld by the employer at the time the paycheck or commission is paid.
Estate and Gift Tax
The federal estate tax applies to the transfer of property at the death of a citizen. The main difference between the Estate Tax and the Inheritance Tax is that the Estate Tax is levied on the estate, while the Inheritance Tax is levied on the heirs. Estate tax rates range from 18% to 48% depending on the value of the estate. Accompanying the federal estate tax program is the federal gift tax, which is designed to prevent individuals from transferring their estates to descendants during their lifetime in the form of gifts. Under the tax law, married couples are allowed to give each of their children up to $11,000 per year in tax-free gifts, with the excess being subject to the gift tax. Because estates can be transferred to surviving spouses without restriction or to charitable organizations after deducting the costs of administering the estate, estate and gift taxes are a small part of the federal tax system, accounting for only 1.3% of the total value of federal tax revenues in fiscal year 2004.
Excise Taxes
Excise taxes are a form of consumption tax, which are levied on the consumption of certain specified goods and services, rather than on income. Excise taxes are federal taxes, and in fiscal year 2004, federal excise tax revenues accounted for approximately 3.7% of total federal tax revenues and 0.6% of gross domestic product. The fuel tax is the largest tax under the federal excise tax on goods, accounting for approximately 30.4% of the tax, while other excise taxes include domestic civil air passenger tax, spirits, wine, beer, cigarettes, and telephone service charges. Some of the excise taxes are levied to raise revenues, reduce deficits, or for highway construction and road air pollution prevention and control. Such as telephone service charges and fuel or for highway construction and road air pollution prevention and control. taxes, some reflect a cost to society of the pollution created by the use of the taxed product, such as excise taxes on cigarettes, and others tax imported goods to ensure that the domestic market for similar goods is not affected. Most federal excise tax revenues are used in various ways in the form of trust funds, the largest being the Highway Trust Fund. Because the excise tax rate is the same for consumers of different incomes, and low-income groups are taxed at a relatively higher level than higher-income groups, the tax is regressive. The tax is a federal tax,
State and Local Taxes
Federal and state taxes in the United States are two different concepts. Taxpayers are required to fill out different forms when filing their tax returns. State and local taxes in the United States come mainly from transaction taxes (such as sales taxes levied on an ad valorem or ad valorem basis), income taxes, and property taxes. The main taxes that concern the average citizen are the earned income tax, the transaction tax, the property tax, and the motor fuel tax.
Each state may establish different taxes and related tax rates according to the relevant laws enacted by the state legislature and according to the level of economic development and the abundance of tax sources. States with a higher standard of living, such as those in the northeastern part of the United States, have higher overall tax levels than those in the south, while some states, such as Alaska, not only do not have a state sales tax or income tax because of its rich oil resources and abundant tax sources, but residents of the state can also receive preferential treatment in the form of a partial tax rebate after paying their taxes. Some states are exempt from sales tax on food and drugs, Florida is exempt from personal income tax, Nevada, South Dakota, Texas, Washington, and Wyoming are exempt from personal and corporate income tax but may impose a franchise or use tax, and some states provide taxpayers with a credit for certain state taxes paid against the same federal tax (see Table V).
According to the most recent estimates by the American Tax Foundation, the average tax burden for state and local taxes in the 50 U.S. states and the District of Columbia was 10.10 percent in 2005. The foundation's 2003 state tax rate ranking information, which is based on the sum of major taxes on household income, shows that the five highest-taxed states in the U.S. are Maine, Washington, D.C., New York, Hawaii, and Rhode Island, with rates of 13.0%, 12.2%, 12.0%, 11.5%, and 11.4%, respectively, while Alaska, New Hampshire, Delaware, Tennessee, and Alabama have the had the lowest taxes at 6.4%, 7.4%, 8.0%, 8.3%, and 8.7%, respectively (see Table IV).
Exemptions, Credits, and Deductions from Taxable Income
Exemptions and credits from taxation mean that a taxpayer may deduct certain expenses from his or her annual gross taxable income in accordance with the rules for the purpose of forming an adjusted gross taxable income on which taxes are paid when the taxpayer completes his or her annual tax return. The amount of deduction varies from taxpayer to taxpayer depending on the level of annual income and the nature of the expenses. Generally, the mortgage on the family home, charitable donations, business expenses, the number of dependents, as well as educational expenses and child care costs are variables that can be used to affect a taxpayer's tax liability. In addition, certain individual retirement accounts, self-employed retirement annuity plans, student loan interest, alimony, certain educational expense expenditures, and relocation expenses are also deductible from taxable gross income pursuant to the regulations. Under the 1997 tax law, a cash refundable tax credit of $400 per child under 17 years of age was adjusted in 2001, 2003 and 2004 to the current cash refundable tax credit of $1,000 per child. The Child and Dependent Care Credit, which credits 35 percent of the cost of care for a child (up to $3,000 per child or $6,000 for two or more caregivers) against taxable income. Where the taxpayer's adjusted gross income exceeds $15,000, the credit rate is adjusted downward accordingly, subject to a minimum of 20%. Continuing Education Expense Credit: In order to encourage students to pursue higher education, a tax credit is available for a substantial portion of a taxpayer's tuition expenses for the first two years of an undergraduate education. Alternative Minimum Tax (Alternative Minimum Tax)
Taxpayers can apply for certain tax credits, exemptions, and deductions in accordance with the relevant federal and state regulations, as well as their own incomes and family financial burdens in the final tax return filing date of each year (generally April 15 each year) before the final tax return date, and then finally, according to the actual situation of the previous year's tax payments, the more the more refund less the compensation. The final amount will be more or less according to the actual tax paid in the previous year. However, this calculation process is very complicated and is usually entrusted to a professional certified public accountant to complete.