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In United States, a progressive tax is imposed on the incomes by the federal government. Income tax is imposed on the incomes of individuals, partnership firms, companies, corporations, trusts, decedent’s estates, and certain bankruptcy estates. The US income Tax law is indeed very complex.
It was during the Civil War that the First Federal income tax was imposed under the US constitution. In 1890s and there after the 16th amendment, the income tax was ratified in 1913. These constitutional provisions along with various sections of Subtitle A of the Internal Revenue Code of 1986 govern the imposition of income tax in the current scenario in US.
Income tax law defines gross income as the total income from all sources less any exclusion (or deduction) specifically allowed by the Congress. Adjusted Gross Income (AGI) in case of individuals is gross income less any above-the-line deductions, which may include alimony, moving expenses, and trade or business deductions. Income tax is imposed on AGI less
- itemized deductions or the applicable standard deduction, whichever is greater,
- a deduction for any allowable personal exemptions for the taxpayer, the taxpayer's spouse (if filing jointly), and the taxpayer's dependents.
It should be noted that in case of higher income taxpayers, the allowed personal exemptions may be reduced or even eliminated. An individual's marginal income tax bracket will depend on his income and his tax-filing classification.
Let us now see the year 2009 income brackets and tax rates for single (A), married filing separately (B), and married filing jointly or qualified widower (C):
Marginal Tax Rate A B C
10% $0 - $8,350 $0- $8,350 $0 - $16,700
15% $8,351 - $33,950 $8,351 - $33,950 $16,701 - $33,950
25% $33,951 - $82,250 $33,951 - $68,525 $67,901 - $137,050
28% $82,251 - $171,550 $68,525 - $104,425 $137,051 - $208,850
33% $171,551 – $372,950 $104,426 - $186,475 $208,851 - $372,950
35% $372,951 & Above $186,476 & Above $372,951 & Above
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