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Income Tax – Is It A Burden On Our Pockets?For long, we have been lamenting about the heavy subtraction from our wallets due to an annual phenomenon – Income Tax. A major source of revenue for most of the state Governments, it is levied as a percentage on the monthly/annual salary of employed people. Not everyone has to pay the same tax. The taxes that one would need to pay are dependant entirely on how much he or she earns in a month/year. Referring to income tax that one needs to pay at the end of the financial year there is a simple calculation that you need to consider. All your monthly salaries are added up cumulatively to your twelve month annual salary. There are certain exemptions on this figure. On the amount which is equivalent to (yearly salary - exemptions), a fixed percentage tax rate is multiplied with it. The fixed percentage tax rate is proportionate and different to the annual salary calculated. Imagine you earning $20,000 a year and one of your colleagues earning $30,000 a year. It will be extremely unrealistic of the federal Government to expect both of you to pay the same tax amount at the end of the financial year. This is a step taken by most Federal Governments to reduce the disparity in dispensable income. Remember, in the previous section I had told you that the fixed percentage tax rate is proportionate with ones monthly/annual salary. In the USA, there are different tax slabs which have percentage rates charged to salaries falling in the range of the slab. For example, if your annual salary is less than $7,550 than you will be charged 10% of $7,550 ($755) will be the annual income tax that you need to pay (assuming $7,550 is the annual taxable income). Just in case, you earn $400,000 than you will be charged 35% of $400,000 ($140,000) as your early tax. If you take into account, at least thousand people in every state of the USA fall into this bracket. Simple multiplication of the two numbers show why the Government is so sensitive to people paying their income taxes on time. The local and state Governments plan and maintain lot of public and health services. These are for our benefit and of course, we use some of these public amenities daily. The funds to maintain these services are generated from the money that is collected from income and other taxes. So, what are you waiting for contact your nearest tax estimator and pay your income tax early. |