What is Income Tax?

An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Taxable income is total income less allowable deductions. Income is broadly defined. Most business expenses are deductible.

Individuals may also deduct a personal allowance (exemption) and certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits.

What is State Income Tax?

Most individual U.S. states collect a state income tax in addition to federal income tax. In addition, some local governments impose an income tax, often based on state income tax calculations. Forty-three states and many localities in the United States impose an income tax on individuals. Forty-seven states and many localities impose a tax on the income of corporations.

State income tax is imposed at a fixed or graduated rate on the taxable income of individuals, corporations, and certain estates and trusts. The rates vary by state. Taxable income conforms closely to Federal taxable income in most states, with limited modifications. The states are prohibited from taxing income from Federal bonds or other obligations. Most do not tax Social Security benefits or interest income from obligations of that state. Several states require different lives and methods be used by businesses in computing the deduction for depreciation. Many states allow a standard deduction or some form of itemized deductions. States allow a variety of tax credits in computing tax.

What is Property Tax?

A property tax (or millage tax) is a levy on property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state, a county/region, or a municipality. Multiple jurisdictions may tax the same property.

There are three types of property: land, improvements to land (immovable man-made objects, such as buildings), and personal property (movable man-made objects). Real property (also called real estate or realty) means the combination of land and improvements. Under a property tax system, the state requires and performs an analysis of the monetary value of each property, and tax is assessed in proportion to that value.

What is Medicare Tax?

The Medicare tax is the amount withheld by your employer from your paycheck that helps cover the cost of running the Medicare program. It is part of FICA that your employer is required to collect and send to the Internal Revenue Service quarterly, who then puts it into a government trust fund. Your total FICA is 7.65 percent. Of that, 1.45 percent represents your contribution to Medicare, with the balance used for the Social Security program. In addition, your employer pays a like amount for Social Security and Medicare.