An Explanation On How Tax Credits In The United States Work
Posted on May 18th, 2010
In order to pay many different levels of our government, the United States (US) must have tax collection. The tax collection system in the US is a very complicated system of economics, that involves collecting from many people through many different avenues. Continue reading to discover how tax credits in the United States work.
Taxes are never voluntary, and they come in two forms, either they are paid directly or indirectly. One of several descriptions for taxes is that they are responsibilities put upon people or property owners in order to provide for the government.
The Internal Revenue Code, or Federal Tax Code is regulated by the IRS. The IRS is regulated by and is a part of the Treasury Department.
The laws first purpose is to bring in money to support the government. Then it attempts to achieve other goals of a social, economical, and political nature. The best illustration to use is the homeowners tax credit. You do not receive a credit if you rent a home or rent an apartment. This encourages everyone to buy homes and stimulate the economy.
US Employers collect payroll taxes to be paid to the federal government from their employees through payroll deductions and make payments to the government. If you are self employed, you must make your own payment. As an individual, you choose what your deductions will be, based on guidelines. It will never come out exactly right, but usually will be within a good range at the end of the year. Certain individuals may decide to deduct more, while others choose to withhold less, based on their own circumstances. Most will fall in the middle range. Federal income taxes are called progressive taxes because the more you earn, the more you are taxed, and so on. It reduces the tax on people who make less and moves it to those who make more.
The EITC is a poverty reducing program in the US. It was created to benefit low income workers and shift the load of the US payroll taxes to higher income workers. The economist estimate that each dollar paid out to a low income worker generates as substantial return on the original in the locale where they live. The EITC was enacted in 1975, and has continue to be extended by legislation ever since then.
Closing Comments
If you have been wondering about all of this taxation and representation business, well here it is. Looks like they may be doing the best that they can. A few other countries do have an EITC program similar to the United States. You have now completed this lesson on learning about how tax credits in the United States work.
Learn more about tax credit information and resources and Missouri Legislature on Tax Credit Reform.
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