Introduction: Overview of the taxing system
Taxes are something nobody enjoys thinking about, but it is very important that you educate yourself on critical issues related to your taxes. This will ensure that you fulfill your legal and fiscal obligations and avoid penalties or other problems. You may even help yourself save some money on your tax bill.
This chapter applies to individuals who are U.S. Citizens or Permanent Residents of the United States of America. If you are an international student, please refer to Federal Tax for Internationals module in our series.
The Federal Income Tax for U.S. Individuals is known as a "Pay as you earn" or "pay as you go" system. It is a progressive tax system which means the more you earn the higher your tax bill will be. Tax rates range between 10% - 37%. They apply incrementally on each additional level of taxable income. Federal Income Tax is the largest amount of taxes a U.S. Individual pays on his/her income, but there are other taxes or compulsory charges imposed on citizens by local, state, and federal governments with the purpose of providing public goods and services to citizens and residents.
Granted, tax forms and laws can be daunting and complicated to many people, but the average person will only have to deal with a few tax forms and schedules. Prior to tax year 2018, Forms 1040 EZ and 1040A were available, but with the 2018 tax year, Form 1040 was modified with some additional forms, like Form 1040NR and Form 1040SR, to become readily available: It is advisable to familiarize yourself with form 1040 for many good reasons:
- The form covers most of what an average individual needs with regard to their taxes
- Once you understand how to use it, you can build upon it year after year
- Because it is comprehensive, you do not risk missing any item that might apply to your financial situation
For the successful understanding of taxing for U.S. individuals, you can follow five steps listed below. Let's get started!
Chapter 1. Language and terminology - key tax terms
Chapter 2. Federal tax rate schedules for individuals
Chapter 3. Tax withholding process - W4 & W2
Chapter 4. Detailed review of Form 1040
Chapter 5. Tax tips for college students
This was made possible in partnership with The Singleton Foundation for Financial Literacy and Entrepreneurship. This video and more videos like this can be found on Millionstories.com.