United States federal income tax

United States federal income tax
Name	United States federal income tax
Type	Direct tax
Jurisdiction	United States
Established	1913 (16th Amendment)
Administered by	Internal Revenue Service
Legislation	Sixteenth Amendment to the United States Constitution, Revenue Act of 1913

United States federal income tax is a system of taxation on individual and corporate income imposed by the United States federal government. It traces its modern authority to the Sixteenth Amendment to the United States Constitution and is administered primarily by the Internal Revenue Service, with major statutory changes passed through United States Congress legislation such as the Revenue Act of 1913 and subsequent revenue acts. The system affects a wide range of persons, entities, and transactions, influencing fiscal policy set by presidents and debated in cases before the Supreme Court of the United States.

History

The constitutional and legislative origins involve the Civil War, when excise and income levies were used, and the postwar jurisprudence of the Supreme Court of the United States in cases like Pollock v. Farmers' Loan & Trust Co.. Political debates across administrations including Woodrow Wilson and William Howard Taft led to ratification of the Sixteenth Amendment to the United States Constitution in 1913 and the enactment of the Revenue Act of 1913. Major wartime expansions occurred during World War I and World War II, with subsequent reforms under presidents such as Franklin D. Roosevelt, Harry S. Truman, John F. Kennedy, Lyndon B. Johnson, and Richard Nixon. Landmark overhauls include the Tax Reform Act of 1986 under Ronald Reagan and the Tax Cuts and Jobs Act of 2017 under Donald Trump, each reshaping brackets, rates, and deductions amid litigation in cases like United States v. Sullivan and legislative battles in the United States Senate and United States House of Representatives.

Legal framework and administration

Statutory authority derives from acts of the United States Congress interpreted alongside the Sixteenth Amendment to the United States Constitution and adjudicated by the Supreme Court of the United States. Administration and enforcement are carried out by the Internal Revenue Service, an agency within the United States Department of the Treasury, which issues regulations, rulings, and forms such as Form 1040 and Form W-2. Procedural law involves the Tax Court of the United States, the United States Court of Appeals, and district courts, with appeals reaching the Supreme Court of the United States. Key statutes include the Internal Revenue Code codified in Title 26 of the United States Code, frameworks from the Office of Management and Budget, budget resolutions by the United States Congress, and oversight by committees like the United States House Committee on Ways and Means and the United States Senate Committee on Finance.

Taxable income and filing requirements

Taxable income concepts are defined in the Internal Revenue Code and interpreted in rulings and cases such as Commissioner v. Glenshaw Glass Co. and Helvering v. Gregory. Gross income includes compensation reported on Form W-2, business receipts for entities such as S corporations and C corporations, capital gains from transactions involving securities traded on exchanges like the New York Stock Exchange, and miscellaneous income subject to self-employment tax for independent contractors contracting with agencies like the Small Business Administration. Filing requirements vary by filing status—single (filing status), married filing jointly, head of household (tax filing status)—and are influenced by credits, deductions, and thresholds set by statutes and notices from the Internal Revenue Service.

Rates, credits, and deductions

Rate structures have ranged from flat to progressive across administrations and laws, including bracket adjustments under the Tax Reform Act of 1986 and rate changes in the Tax Cuts and Jobs Act of 2017. Individual income tax rates, corporate rates, and capital gains schedules interact with credits such as the Earned Income Tax Credit and the Child Tax Credit, and deductions including the standard deduction (United States) and itemized deductions for mortgage interest influenced by the Housing and Community Development Act of 1992 and other statutes. Tax expenditures, studied by the Congressional Budget Office and the Joint Committee on Taxation, include exclusions, preferences, and special rules for entities such as nonprofit organizations and sectors like energy, with incentives enacted in laws like the Energy Policy Act of 2005.

Enforcement, audits, and penalties

Enforcement mechanisms involve audits, examinations, levies, liens, and criminal referral to the United States Department of Justice for prosecutions under statutes enforced by the Internal Revenue Service Criminal Investigation Division. Administrative appeals may proceed to the Tax Court of the United States or federal district courts, and penalties include accuracy-related penalties, failure-to-file, failure-to-pay, and fraud penalties codified in the Internal Revenue Code. High-profile enforcement matters have involved investigations linked to figures such as Al Capone historically and later scrutiny in cases relating to public figures heard by the United States District Court system.

Economic effects and controversies

Debates over progressivity, efficiency, and equity involve economists advising presidents like John Maynard Keynes (intellectual influence), policy decisions during administrations of Bill Clinton, George W. Bush, and Barack Obama, and recommendations from institutions such as the Congressional Budget Office and the Federal Reserve. Controversies include tax avoidance strategies used by multinational corporations examined in hearings featuring executives from firms listed on the Fortune 500, disputes over treatment of carried interest, and political debates over rate cuts or increases during campaigns featuring candidates like Hillary Clinton and Mitt Romney. Scholarly and public discussion often references works by economists associated with universities such as Harvard University, Massachusetts Institute of Technology, and University of Chicago and is litigated in forums including the Supreme Court of the United States and congressional hearings before the United States Senate Committee on Finance.

Category:Taxation in the United States