{"id":20723,"date":"2022-09-13T07:00:00","date_gmt":"2022-09-13T12:00:00","guid":{"rendered":"https:\/\/resource-center.hrblock.com\/"},"modified":"2025-08-25T12:22:17","modified_gmt":"2025-08-25T17:22:17","slug":"income-tax","status":"publish","type":"post","link":"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/income\/other-income\/income-tax\/","title":{"rendered":"Federal income tax \u2013 What it is and why we pay it"},"content":{"rendered":"\n

Although there are many different types of taxes\u2014estate tax and excise tax, etc.\u2014 often people are referring to federal income tax when they use the broad term “taxes.” This is likely because income taxes are the federal government\u2019s primary source of revenue income.<\/p>\n\n\n\n

In this post, we\u2019ll explore the different types of income that is taxed below\u2014along with the income tax definition, where it’s allocated within the U.S. federal budget, and who pays.<\/p>\n\n\n\n

Income tax definition<\/h2>\n\n\n
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What is income tax?\u201d Let\u2019s tackle this concept first. Income tax is a tax levied by the country, state, city\/township, county, and even school district you live in on income you receive in a tax year. Income tax varies from country to country, and even state to state<\/a>.<\/p>\n\n\n\n

How do taxes work? <\/h2>\n\n\n\n

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Federal income tax in the U.S. is a \u201cprogressive\u201d tax, paid at a marginal tax rate, which means each range of income you receive in a year is in a different federal tax bracket<\/a> and taxed at a different rate. Progressive tax is a system where you pay more as your taxable income increases. Currently, there are seven tax brackets that range from 10 to 37%.<\/p>\n\n\n\n

At tax time, your tax bracket, credits, deductions, and filing status<\/a> all go into figuring your taxes and if you owe or get a refund.<\/p>\n\n\n\n

Who pays income tax?<\/h2>\n\n\n\n

In the U.S, most people pay income taxes on the money they earn at a job, but there are many more forms of income.  This includes income from capital gains<\/a>, gambling winnings<\/a>, rents, royalties, interest and dividends, business earnings, unemployment compensation<\/a>, and even lottery winnings. Check out this list of taxable and tax-free sources of income<\/a> for a deeper dive.<\/p>\n\n\n\n

While we all are required to pay federal income tax, not everyone will have to file a tax return. Find out how much you have to make to file taxes<\/a>. Even if you don’t have a filing requirement, you may want to file to get a refund or tax credit.<\/p>\n\n\n\n

Plus, if you need help determining what you owe in federal income tax\u2014or state income tax\u2014H&R Block\u2019s skilled tax pros are here to help. Just want to get an estimate on your federal taxes? Check out our free income tax calculator<\/a>.<\/p>\n\n\n\n

Why do we pay income taxes?<\/h2>\n\n\n\n

Next, let\u2019s answer \u201cwhy do we pay taxes?\u201d Paying federal and state taxes on income<\/a> is mandated by the government, but why is this civic duty so important?<\/p>\n\n\n\n

These taxes fund a long list of services and programs at the federal, state and local levels\u2014as we cover in the next section. Without income taxes, there would be serious consequences to the financial wellbeing of the country. \u00a0<\/p>\n\n\n\n

What are income taxes used for?<\/h2>\n\n\n\n

When you pay the IRS or your state revenue department, it\u2019s like you\u2019re chipping in to pay your part of a larger bill for shared resources. So, what are taxes used for? The answer includes a number of things. Here is a breakdown of categories:<\/p>\n\n\n\n