Personal Income Taxes

Personal Income Taxes Related Information:

You just got your first paycheck from your first job and are pretty excited about it. You finally have money that you can call your own and spend it as you please. No more taking money from your parents and asking for an allowance. Hey, but what’s this? My paycheck does not reflect the proper figure. Where’s the rest of my money?

Sound familiar? Well, the rest of your money, as you put it, has gone into the pockets of Uncle Sam as personal income taxes. Who’s Uncle Sam? For the uninitiated, it is the Internal Revenue Service (IRS). The IRS is the federal agency that is responsible for collecting income taxes in the United States.

An Introduction To Personal Income Taxes

If you earn any income, whether by way of salaries, wages, interest, dividends, tips, etc., you have to pay personal income taxes to the IRS. Every American citizen that is making money (above a certain limit) has to pay income tax to the government.

In the case of most people, their employer will deduct what is known as payroll taxes from your paycheck and then hand over the remaining amount to you. These withheld payroll taxes are a portion of your income, deducted as tax, which is given to the IRS and is then credited to you at the time of filing your income tax return as withholdings.

Filing Personal Income Tax Returns

Most people think that just because their employer withholds taxes, their tax liability is met and they need not file an income tax return. But this is not true. Even if you pay taxes through withholding, you still need to file a return, in order to determine if you have to pay more taxes or are due a refund.

A return is filed according to your filing status. There are five types of filing status available for personal income taxes. These are:

• Single: If you are not married, are divorced or legally separated, then you are considered single for filing purposes.

• Married, Filing Jointly: If you are married, you can claim this filing status. Under this status, you can file a joint return along with your spouse if you were married as of the last day of the tax year, which is December 31 st. If your spouse dies in a particular tax year and you do not get married again, you are still considered married for that year.

• Married, Filing Separately: Available to married people who wish to file their tax returns separately. This filing status should be considered only if it reduces your tax bill as a married person, or if you do not want to be responsible for your spouse’s returns.

• Head of Household: If you are unmarried and are responsible for paying more than half the cost for maintaining a home with another relative, then you can claim this filing status.

• Qualifying Widow/ Widower with Dependent Child: If your spouse has died and you have a dependant child, you can claim this filing status. It is available for two years after your spouse has died.

What Is Taxed

Not all the income that you earn is taxed by the IRS; only your taxable income. Taxable income refers to your gross income, both earned and unearned, minus any allowable deductions, exemptions, and credits.

Depending on your filing status, the IRS allows certain adjustments and expenses that can be subtracted from your gross income, to reach your adjusted gross income.

Once you have figured out your adjusted gross income, you may be able to find some more reductions to minimize your taxable income. These are:

• Deductions: Includes standard deductions (depend on filing status and varies from year to year) and itemized deductions.
• Exemptions: Expenses that can be deducted from gross income on account of any dependants, such as spouse, children, parents etc.
• Credits: The IRS also allows some credits, which can be reduced from your gross income.

Once you have arrived at your taxable income, after deducting all allowed deductions, exemptions, and credits, you have to pay personal income taxes on this taxable income.

The rate of personal income tax once again depends on your filing status and your taxable income, and is preset each year by the IRS.