View source for Income tax

{{short description|Tax based on taxable income}}
{{Taxation}}

An '''income tax''' is a [[tax]] imposed on individuals or entities (taxpayers) in respect of the [[income]] or profits earned by them (commonly called [[taxable income]]). Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income.

The tax rate may increase as taxable income increases (referred to as graduated or [[progressive tax]] rates). The tax imposed on companies is usually known as [[corporate tax]] and is commonly levied at a flat rate. Individual income is often taxed at progressive rates where the tax rate applied to each additional unit of income increases (e.g., the first $10,000 of income taxed at 0%, the next $10,000 taxed at 1%, etc.). Most jurisdictions exempt local charitable organizations from tax. Income from investments may be taxed at different (generally lower) rates than other types of income. Credits of various sorts may be allowed that reduce tax. Some jurisdictions impose the higher of an income tax or a tax on an alternative base or measure of income.

Taxable income of taxpayers' resident in the jurisdiction is generally total income less income producing expenses and other deductions. Generally, only net gain from the sale of property, including goods held for sale, is included in income. The income of a corporation's shareholders usually includes distributions of profits from the corporation. Deductions typically include all income-producing or business expenses including an allowance for recovery of costs of business assets. Many jurisdictions allow notional deductions for individuals and may allow deduction of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income. Nonresidents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions.

Most jurisdictions require self-assessment of the tax and require payers of some types of income to withhold tax from those payments. Advance payments of tax by taxpayers may be required. Taxpayers not timely paying tax owed are generally subject to significant penalties, which may include jail-time for individuals.
Taxable income of taxpayers resident in the jurisdiction is generally total income less income producing expenses and other deductions. Generally, only net gain from the sale of property, including goods held for sale, is included in income. The income of a corporation's shareholders usually includes distributions of profits from the corporation. Deductions typically include all income-producing or business expenses including an allowance for recovery of costs of business assets. Many jurisdictions allow notional deductions for individuals and may allow deduction of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income. Nonresidents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions.

==History==
[[File:Top marginal income tax rate, OWID.svg|thumb|Top marginal tax rate of the income tax (i.e. the maximum rate of taxation applied to the highest part of income)]]
The concept of taxing income is a modern innovation and presupposes several things: a [[money]] [[economy]], reasonably accurate [[Financial accountancy|accounts]], a common understanding of receipts, expenses and [[Profit (accounting)|profits]], and an orderly society with reliable records.

For most of the history of [[civilization]], these preconditions did not exist, and taxes were based on other factors. Taxes on [[wealth]], social position, and ownership of the [[means of production]] (typically [[Real property|land]] and [[slaves]]) were all common. Practices such as [[tithe|tithing]], or an offering of [[First Fruits|first fruits]], existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.

===Early examples===
In 9 CE, Emperor [[Wang Mang]] of the [[Xin dynasty]] (9 to 23 CE) established the first income [[Taxation in premodern China|tax]] through a 10% tax of net earnings from wild herb and fruit collection, fishing, shepherding, and various nonagricultural activities and forms of trading.<ref name=":02">{{Cite book |last=Lin |first=Shuanglin |title=China's Public Finance: Reforms, Challenges, and Options |date= |publisher=[[Cambridge University Press]] |year=2022 |isbn=978-1-009-09902-8 |edition= |location=New York, NY}}</ref>{{Rp|page=97}} People were obligated to report their taxes to the government and officials would audit these reports.<ref name=":02" />{{Rp|page=97}} The penalty for evading this tax was one year of hard labor and confiscation of the entirety of a person's property.<ref name=":02" />{{Rp|page=97}} Because it caused popular discontent, this income tax was abolished in 22 CE.<ref name=":02" />{{Rp|page=97}}

In the early days of the [[Roman Republic]], public taxes consisted of modest assessments on owned wealth and property. The tax rate under normal circumstances was 1% and sometimes would climb as high as 3% in situations such as war. These modest taxes were levied against land, homes and other real estate, slaves, animals, personal items and monetary wealth. The more a person had in property, the more tax they paid. Taxes were collected from individuals.<ref>{{cite web |url=http://www.unrv.com/economy/roman-taxes.php |title=Roman Taxes |website=UNRV.com |access-date=April 12, 2014}}</ref>

One of the first recorded taxes on income was the [[Saladin tithe]] introduced by [[Henry II of England|Henry II]] in 1188 to raise money for the [[Third Crusade]].<ref>{{cite web |url=http://www.medievalsourcesbibliography.org/sources/1159550365 |title=Saladin Tithe |website=Online Medieval Sources Bibliography}}</ref> The tithe demanded that each layperson in [[Kingdom of England|England and Wales]] be taxed one tenth of their personal income and moveable property.<ref>{{cite book|title=Income tax in common law jurisdictions: from the origins to 1820, Volume 1|last=Harris|first=Peter|year=2006|page=34|publisher=Cambridge University Press |isbn=978-0-521-87083-2|url=https://books.google.com/books?id=HYvfTdbdkg4C&pg=PA34}}</ref>

In 1641, Portugal introduced a personal income tax called the ''décima''.<ref>{{cite book|title=An Economic History of Portugal, 1143-2010|last1=Freire Costa|first1=Leonor|last2=Lains|first2=Pedro|last3=Münch Miranda|first3=Susana|year=2016|page=8|publisher=Cambridge University Press |isbn=978-1-107-03554-6|url= http://www.cambridge.org/9781107035546|url-access=subscription}}</ref>

===Modern era===

==== United Kingdom ====
{{See also|Taxation in the United Kingdom#Income tax|Taxation in the United Kingdom#Modern Rules}}[[File:The_stratagem_alias_the_French_bug-a-bo_or_Iohn_Bull_turn%27d_scrub_%28BM_1868,0808.6811%29.jpg|thumb|upright=0.9|right|[[William Pitt the Younger]] introduced a progressive income tax in 1798.]]
The inception date of the modern income tax is typically accepted as 1799,<ref>{{cite book|title=Income tax in common law jurisdictions: from the origins to 1820, Volume 1|last=Harris|first=Peter|year=2006|page=1|publisher=Cambridge University Press |isbn=978-0-521-87083-2|url=https://books.google.com/books?id=HYvfTdbdkg4C&pg=PA1}}</ref> at the suggestion of [[Henry Beeke]], the future [[Dean of Bristol]].<ref>{{cite book|last=Urban|first=Sylvanus|author-link=Edward Cave|title=The Gentleman's Magazine|volume=VII (162)|series=New Series|year=1837|pages=546–47|url=https://books.google.com/books?id=I-QIAAAAIAAJ&pg=PA546}}</ref>
This income tax was introduced into [[Kingdom of Great Britain|Great Britain]] by [[Prime Minister]] [[William Pitt the Younger]] in his budget of December 1798, to pay for weapons and equipment for the [[French Revolutionary War]].<ref name=":02" />{{Rp|page=97}} Pitt's new graduated (progressive) income tax began at a levy of 2 [[old pence]] in the [[Pound Sterling|pound]] ({{frac|1|120}}) on incomes over £60 (equivalent to £{{formatnum:{{Inflation|UK-GDP|60|1798|r=-2}}}} in {{Inflation/year|UK-GDP}}),{{Inflation/fn|UK}} and increased up to a maximum of 2 [[shilling]]s in the pound (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million a year, but actual receipts for 1799 totalled only a little over £6 million.<ref name="first">{{cite web|url=http://www.hmrc.gov.uk/history/taxhis1.htm |title=A tax to beat Napoleon |publisher=HM Revenue & Customs |access-date=January 24, 2007 |archive-url=https://web.archive.org/web/20100724033906/http://www.hmrc.gov.uk/history/taxhis1.htm |archive-date=July 24, 2010 }}</ref>

Pitt's income tax was levied from 1799 to 1802, when it was abolished by [[Henry Addington]] during the [[Peace of Amiens]]. Addington had taken over as [[prime minister]] in 1801, after Pitt's resignation over [[Catholic Emancipation]]. The income tax was reintroduced by Addington in 1803 when hostilities with France recommenced, but it was again abolished in 1816, one year after the [[Battle of Waterloo]]. Opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the [[Chancellor of the Exchequer]], but copies were retained in the basement of the tax court.<ref>{{cite book |last=Adams |first=Charles |date=1998 |title=Those Dirty Rotten Taxes: the tax revolts that built America |url=https://archive.org/details/thosedirtyrotten00char/mode/2up |location=New York |publisher=The Free Press |isbn=0-684-84394-3}}</ref>

[[File:Punch- Income Tax 1907.jpg|thumb|''[[Punch (magazine)|Punch]]'' cartoon (1907); illustrates the unpopularity amongst Punch readers of a proposed 1907 income tax by the Labour Party in the United Kingdom.|upright]]
Income tax was reintroduced by [[Robert Peel|Sir Robert Peel]] by the [[Income Tax Act 1842]]. Peel, as a [[Conservative Party (UK)|Conservative]], had opposed income tax in the [[1841 United Kingdom general election|1841 general election]], but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150 (equivalent to £{{formatnum:{{Inflation|UK-GDP|150|1842|r=0}}}} in {{Inflation/year|UK-GDP}}).{{Inflation/fn|UK-GDP}} Although this measure was initially intended to be temporary, it soon became a fixture of the British taxation system.

A committee was formed in 1851 under [[Joseph Hume]] to investigate the matter, but failed to reach a clear recommendation. Despite the vociferous objection, [[William Ewart Gladstone|William Gladstone]], [[Chancellor of the Exchequer]] from 1852, kept the progressive income tax, and extended it to cover the costs of the [[Crimean War]]. By the 1860s, the progressive tax had become a grudgingly accepted element of the United Kingdom fiscal system.<ref>{{cite book|url=https://books.google.com/books?id=TECRHKm4WYQC|title=Anglo-American Corporate Taxation: Tracing the Common Roots of Divergent Approaches|last=Bank|first=Steven A.|year=2011|publisher=Cambridge University Press|pages=28–29|isbn=978-1-139-50259-7}}</ref>

====United States====
{{main|History of taxation in the United States}}

The [[Union (American Civil War)|US federal government]] imposed the first personal income tax on [[Revenue Act of 1861|August 5, 1861]], to help pay for its war effort in the [[American Civil War]] (3% of all incomes over US$800) (equivalent to ${{formatnum:{{Inflation|US-GDP|800|1861|r=-2}}}} in {{Inflation/year|US-GDP}}).<ref name="Stat 1861">Revenue Act of 1861, sec. 49, ch. 45, 12 Stat. 292, 309 (August 5, 1861).</ref><ref>{{cite journal |last=Pollack |first=Sheldon D. |date=2014 |title= The First National Income Tax, 1861–1872 |journal=The Tax Lawyer |volume=67 |issue=2 |pages=311–330 |jstor=24247751}}</ref>{{Inflation/fn|US-GDP}} This tax was repealed and replaced by another income tax in 1862.<ref>Sections 49, 51, and part of 50 repealed by Revenue Act of 1862, sec. 89, ch. 119, 12 Stat. 432, 473 (July 1, 1862); income taxes imposed under Revenue Act of 1862, section 86 (pertaining to salaries of officers, or payments to "persons in the civil, military, naval, or other employment or service of the United States&nbsp;...") and section 90 (pertaining to "the annual gains, profits, or income of every person residing in the United States, whether derived from any kind of property, rents, interest, dividends, salaries, or from any profession, trade, employment or vocation carried on in the United States or elsewhere, or from any other source whatever&nbsp;...").</ref><ref>{{cite web|url=https://www.loc.gov/law/help/statutes-at-large/38th-congress/session-1/c38s1ch173.pdf|title=THIRTY-EIGHTH CONGRESS. SESS.. I. C. 173. 1864|website=Library of Congress|access-date=November 7, 2018|archive-date=November 13, 2018|archive-url=https://web.archive.org/web/20181113081507/https://www.loc.gov/law/help/statutes-at-large/38th-congress/session-1/c38s1ch173.pdf}}</ref> It was only in 1894 that the first peacetime income tax was passed through the [[Wilson-Gorman tariff]]. The rate was 2% on income over $4000 (equivalent to ${{formatnum:{{Inflation|US-GDP|4000|1894|r=-3}}}} in {{Inflation/year|US-GDP}}), which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions.<ref>{{Cite journal |jstor = 1883633|title = The New Income Tax|journal = The Quarterly Journal of Economics|volume = 9|issue = 1|pages = 26–46|last1 = Dunbar|first1 = Charles F.|year = 1894|doi = 10.2307/1883633}}</ref> The US Supreme Court ruled the income tax [[Pollock v. Farmers' Loan & Trust Co.|unconstitutional]], the 10th amendment forbidding any powers not expressed in the US Constitution, and there being no power to impose any other than a direct tax by apportionment.

In 1913, the [[Sixteenth Amendment to the United States Constitution]] cleared the unconstitutionality obstacle which previously had not allowed for the implementation of a federal income tax before 1913 in the United States. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920.<ref name="firstUS">{{cite web | url= https://mises.org/story/1597 | title=The Origin of the Income Tax | publisher=[[Ludwig von Mises Institute]] | last=Young | first=Adam | date=September 7, 2004 | access-date =January 24, 2007}}</ref> The amount of income collected via income tax has varied dramatically, from 1% for the lowest bracket in the early days of US income tax to taxation rates of over 90% for the highest bracket during [[World War II]].

== Timeline of introduction of income tax by country ==
* '''1799–1802''': {{flag|United Kingdom}}
* '''1803–1816''': {{flag|United Kingdom}}
* '''1840''': {{flag|Switzerland}}<ref>{{Cite web |url=https://wifoe.tg.ch/public/upload/assets/34523/AnoutlineontheSwissTaxSystem2016.pdf |title=An outline of Swiss Tax System |access-date=May 6, 2019 |archive-date=May 6, 2019 |archive-url=https://web.archive.org/web/20190506135739/https://wifoe.tg.ch/public/upload/assets/34523/AnoutlineontheSwissTaxSystem2016.pdf }}</ref>
* '''1842''': {{flag|United Kingdom}}
* '''1860''':  {{Flag|British Raj}}<ref>{{cite news |last=Pandey |first=T. N. |date=February 13, 2000 |title=The evolution of income-tax |url= https://www.thehindubusinessline.com/todays-paper/tp-others/article29052871.ece |work=The Hindu Business Line}}</ref>{{efn|[[Income tax in India]]}}
* '''1861–1872''': {{flag|United States}}
* '''1864''': {{Flag|Kingdom of Italy}}<ref>{{Cite web |title=1864 - 1973 Imposta di ricchezza mobile |url=https://www.finanze.gov.it/opencms/it/il-dipartimento/fisco-e-storia/i-tributi-nella-storia-ditalia/1864-1973-imposta-di-ricchezza-mobile/ |access-date=March 14, 2023 |website=Dipartimento Finanze |language=it}}</ref>
* '''1872''': {{flag|France}}<ref>{{cite web |url=https://www.europenowjournal.org/2019/02/04/top-incomes-in-france-in-the-twentieth-century-inequality-and-redistribution-1901-1998-by-thomas-piketty/ |title= Top Incomes in France in the Twentieth Century Inequality and Redistribution, 1901–1998 by Thomas Piketty |website=EuropeNow}}</ref>
* '''1887''': {{flag|Empire of Japan}}<ref>{{cite journal |last=Shiomi |first=Saburo |date=1935 |title=The Development of the Income Tax in Japan |jstor=43216791 |journal=Kyoto University Economic Review |volume=10 |issue=1 |pages=54–84}}
</ref>
* '''1891''': {{flag|New Zealand}},<ref>{{cite journal |last=Vosslamber |first=Rob |date=2011 |title=Taxation for New Zealand's future: The introduction of New Zealand's progressive income tax in 1891 |url=https://www.researchgate.net/publication/254074481 |journal=Accounting History |volume=17 |issue=1 |pages=105–122 |doi=10.1177/1032373211424581 |s2cid=154949776 }}</ref> at the time a [[Colony of New Zealand|colony]] of the United Kingdom
* '''1894–95''': {{flag|United States}}
* '''1900''': {{flag|Spain}}<ref>{{cite web |last1=Jiménez-Valladolid de L´Hotellerie-Fallois |first1=Domingo Alberto |last2=Vega Borrego |first2=Félix |date=2013 |url=http://www.eatlp.org/uploads/public/2013/National%20report%20Spain.pdf |title=Corporate income tax subjects: Spain |access-date=May 6, 2019 |archive-date=December 12, 2019 |archive-url=https://web.archive.org/web/20191212124900/http://www.eatlp.org/uploads/public/2013/National%20report%20Spain.pdf |publisher=Ministry of Economy and Competitiveness of Spain}}</ref>
* '''1903''': {{flag|Denmark}},<ref>{{cite report |author=Organisation for Economic Co-operation and Development  |author-link=OECD |title=Tax Policy Reforms in Denmark |url= https://www.oecd.org/ctp/tax-policy/37154664.pdf}}</ref> {{flag|Sweden}}
* '''1908''': {{flag|Indonesia}}<ref>{{Cite web |url=https://www.rug.nl/research/portal/files/2800266/c5.pdf |title=Who pulled the strings? A comparative study of Indonesian and Vietnamese tax reform |access-date=May 6, 2019 |archive-date=May 6, 2019 |archive-url=https://web.archive.org/web/20190506135734/https://www.rug.nl/research/portal/files/2800266/c5.pdf }}</ref>
* '''1911''': {{flag|Norway}}<ref>{{cite encyclopedia |last=Zimmer |first=Frederik |author-link=Frederik Zimmer |editor-last=Wahlgren |editor-first=Peter |encyclopedia=Scandinavian Studies in Law |title=The Development of the Concept of Income in Nordic Tax Law |url=http://www.scandinavianlaw.se/pdf/44-24.pdf |date=2003 |publisher=The Stockholm University Law Faculty |volume=44: Tax Law |location=Stockholm |pages=393–410}}</ref>
* '''1913''': {{flag|United States}}
* '''1916''': {{flag|Australia}},<ref>{{cite web |url=https://www.austaxpolicy.com/income-tax-at-100-years-a-little-history/ |title= Income Tax at 100 Years: A Little History |last=Stewart |first=Miranda |date=June 6, 2016 |website=Tax and Transfer Policy Institute |publisher=Australian National University}}</ref> {{flag|Russian Empire}}<ref>{{cite journal |last=Bowman |first=Linda |date=1993 |title=Russia's First Income Taxes: The Effects of Modernized Taxes on Commerce and Industry, 1885-1914 |journal=Slavic Review |volume=52 |issue=2 |pages=256–282 |doi=10.2307/2499922|jstor=2499922 |s2cid=156258835 }}</ref>
* '''1918''': {{flag|Canada}}
* '''1919''': {{flag|Philippines}}<ref>{{cite journal |last1=Vega |first1=Elias |last2=Short |first2=Ralph |title=National Tax Administration in the Philippines |journal=Washington Law Review |date=1965 |volume=40 |issue=3 |page=581 |url=https://digitalcommons.law.uw.edu/wlr/vol40/iss3/9 |access-date=10 January 2025}}</ref>
* '''1920''': {{flag|Finland}}, {{flag|Poland}}<ref>{{Cite Polish law |title=Ustawa z dnia 16 lipca 1920 r. o państwowym podatku dochodowym i podatku majątkowym |trans-title=Act on State Income Tax and Property Tax |year=1920 |volume=82 |number=550 |date=July 16, 1920}}</ref>
* '''1921''': {{flag|Iceland}}
* '''1924''': {{flag|Brazil}},<ref>{{cite news |last=Rodriguez |first=Diogo |date=October 18, 2018 |title=Income tax in Brazil: past, present, and future |url=https://brazilian.report/money/2018/10/18/income-tax-brazil-future/ |url-access=subscription |work=The Brazilian Report |archive-date=May 6, 2019 |access-date=May 6, 2019 |archive-url=https://web.archive.org/web/20190506135738/https://brazilian.report/money/2018/10/18/income-tax-brazil-future/ }}</ref> {{flag|Mexico}}<ref>{{cite book |last=Albertus |first=Michael |date=2015 |title=Autocracy and Redistribution: the politics of land reform |url=https://books.google.com/books?id=jJprCgAAQBAJ&dq=mexico+1924+income+tax&pg=PA76 |location=New York |publisher=Cambridge University Press |page=76 |isbn=978-1-107-10655-0}}</ref>
* '''1932''': {{flag|Bolivia}},<ref>{{cite book |last=Contreras |first=Manuel E |date=1993 |title=The Bolivian Tin Mining Industry in the First Half of the Twentieth Century |url=https://sas-space.sas.ac.uk/3404/1/B14_-_The_Bolivian_Tin_Mining_Industry_in_the_First_Half_of_the_Twentieth_Century.pdf |series=Institute of Latin American Studies Research Papers |volume=32 |location=London |publisher=Institute of Latin American Studies |isbn=0-901145-85-8}}</ref> {{flag|Argentina}}<ref>{{Cite web |url=http://www.helsinki.fi/iehc2006/papers3/Mitchell.pdf |title=Institutions and Factor Endowments: Income Taxation in Argentina and Australia |access-date=May 6, 2019 |archive-date=May 6, 2019 |archive-url=https://web.archive.org/web/20190506135744/http://www.helsinki.fi/iehc2006/papers3/Mitchell.pdf }}</ref>
* '''1934''': {{flag|Peru}}<ref>{{cite journal |last=Basombrio Porras |first=Carlos |date=<!--Unknown--> |title=Collection Agencies and Systems in Peru |url=https://www.ciat.org/Biblioteca/AsambleasGenerales/1968/Ingles/assembly2_argentina1968_basombrio_peru.pdf |pages=129–132}}</ref>
* '''1937''': {{flag|Republic of China}}<ref>{{cite encyclopedia |last=Pang Tim Tim |first=Terence |editor-last=Pak-Wah Leung |editor-first=Edwin |encyclopedia=Political Leaders of Modern China: A Biographical Dictionary |title=Kong Xiangxi, Chauncey |url=https://archive.org/details/politicalleaders0000unse_h4d2/page/76/mode/2up |url-access=registration |date=2002 |publisher=Greenwood Press |location=Westport, Connecticut |isbn=0-313-30216-2 |page=77}}</ref>
* '''1942''': {{flag|Venezuela}}<ref>{{cite conference |last1=Moreno |first1=María Antonia |last2=Maita Bolívar |first2=Miriam Adriana |date=2014 |title=Tax elasticity in Venezuela: A dynamic cointegration approach |url= http://www.cemla.org/red/cbrn-xix-papers/cbrn-xix-papers-00036.pdf | conference=XIX Meeting of the Central Bank Researchers Network of the Americas}}</ref>
* '''1979''': {{flag|Pakistan}}<ref>{{cite web |url= https://file.pide.org.pk/pdf/Books/Tax-Reforms-in-Pakistan-Historic-and-Critical-View.pdf |title= Tax Reforms in Pakistan |date=October 30, 2013 | publisher=PIDE |language=en }} Historic & Critical View </ref>
* '''2007''': {{flag|Uruguay}}<ref>{{cite web |url= https://www.dgi.gub.uy/wdgi/afiledownload?2,4,1360,O,S,0,29490%3BS%3B3%3B108 |title=6 años de IRPF, evaluación de la imposición a la renta personal |date=October 30, 2013 |publisher=Jornadas Tributarias |language=es |trans-title=Six years of IRPF, evaluation of the personal income tax |type=presentation}}</ref>

==Common principles==
While tax rules vary widely, certain basic principles are common to most income tax systems. Tax systems in Canada, China, [[Taxation in Germany|Germany]], [[Income tax in Singapore|Singapore]], the United Kingdom, and the United States, among others, follow most of the principles outlined below. Some tax systems, such as [[Income tax in India|India]], may have significant differences from the principles outlined below. Most references below are examples; see specific articles by jurisdiction (''e.g.'', [[Income tax in Australia]]).

===Taxpayers and rates===
Individuals are often taxed at different rates than corporations. Individuals include only human beings. Tax systems in countries other than [[Entity classification|the US]] treat an entity as a corporation only if it is legally organized as a corporation. Estates and trusts are usually subject to special tax provisions. Other taxable entities are generally treated as partnerships. In the US, many kinds of entities may elect to be treated as a corporation or a partnership. Partners of partnerships are treated as having income, deductions, and credits equal to their shares of such partnership items.

Separate taxes are assessed against each taxpayer meeting certain minimum criteria. Many systems allow married individuals to request [[Income tax in the United States#Federal income tax rates|joint assessment]]. Many systems allow [[Combined reporting|controlled groups]] of locally organized corporations to be jointly assessed.

Tax rates vary widely. Some systems impose [[Progressive tax|higher rates on higher amounts of income]]. Tax rates schedules may vary for individuals based on marital status.{{efn|See, ''e.g.'', rates under the [[Taxation in Germany#Income tax for residents|Germany]] and [[Income tax in the United States#Federal income tax rates|United States]] systems.}} In India on the other hand there is a slab rate system, where for income below INR 2.5 lakhs per annum the tax is zero percent, for those with their income in the slab rate of INR 2,50,001 to INR 5,00,000 the tax rate is 5%. In this way the rate goes up with each slab, reaching to 30% tax rate for those with income above INR 15,00,000.<ref>{{cite news |title=Income Tax Slabs - Economic Times |newspaper=The Economic Times|url=https://economictimes.indiatimes.com/wealth/tax/latest-income-tax-slabs/articleshow/62751981.cms}}</ref>

=== Residents and non-residents ===
Residents are generally taxed differently from non-residents. Few jurisdictions tax non-residents other than on specific types of income earned within the jurisdiction. See, ''e.g.'', the discussion of taxation by [[Income tax in the United States#International aspects|the United States of foreign persons]]. Residents, however, are generally subject to income tax on all worldwide income.{{efn|The [[Taxation in Germany#Income tax for residents|German system]] is typical in this regard.}} A handful of jurisdictions (notably [[Income tax in Singapore|Singapore]] and Hong Kong) tax residents only on income earned in or remitted to the jurisdiction. There may arise a situation where the tax payer has to pay tax in one jurisdiction he or she is tax resident and also pay tax to other country where he or she is non-resident. This creates the situation of Double taxation which needs assessment of Double Taxation Avoidance Agreement entered by the jurisdictions where the tax payer is assessed as resident and non-resident for the same transaction.

Residence is often defined for individuals as presence in the jurisdiction for more than 183 days. Most jurisdictions base residence of entities on either place of organization or place of management and control.

===Defining income===
Most systems define income subject to tax broadly for residents, but tax nonresidents only on specific types of income. What is included in income for individuals may differ from what is included for entities. The timing of recognizing income may differ by type of taxpayer or type of income.

Income generally includes most types of receipts that enrich the taxpayer, including compensation for services, gain from sale of goods or other property, interest, dividends, rents, royalties, annuities, pensions, and all manner of other items.{{efn|See, ''e.g.'', [[Income tax in the United States#Taxable income|gross income in the United States]].}} Many systems exclude from income part or all of [[Pension|superannuation]] or other national retirement plan payments. Most tax systems exclude from income health care benefits provided by employers or under national insurance systems.

===Deductions allowed===
Nearly all income tax systems permit residents to reduce gross income by business and some other types of deductions.  By contrast, nonresidents are generally subject to income tax on the gross amount of income of most types plus the net business income earned within the jurisdiction.

Expenses incurred in a trading, business, rental, or other income producing activity are generally deductible, though there may be limitations on some types of expenses or activities. Business expenses include all manner of costs for the benefit of the activity. An allowance (as a capital allowance or depreciation deduction) is nearly always allowed for recovery of costs of assets used in the activity. Rules on capital allowances vary widely, and often permit recovery of costs more quickly than ratably over the life of the asset.

Most systems allow individuals some sort of [[Tax exemption#Specific monetary exemptions|notional deductions]] or an amount subject to zero tax. In addition, many systems allow deduction of some types of personal expenses, such as home mortgage interest or medical expenses.

===Business profits===
Only net income from business activities, whether conducted by individuals or entities is taxable, with few exceptions. Many countries require business enterprises to prepare financial statements<ref>See, ''e.g.'', [http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml#ch4 UK requirements]</ref> which must be audited. Tax systems in those countries often define taxable income as income per those financial statements with few, if any, adjustments. A few jurisdictions compute net income as a fixed percentage of gross revenues for some types of businesses, particularly branches of nonresidents.

===Credits===
Nearly all systems permit residents a [[Foreign tax credit|credit]] for income taxes paid to other jurisdictions of the same sort. Thus, a credit is allowed at the national level for income taxes paid to other countries. Many income tax systems permit other credits of various sorts, and such credits are often unique to the jurisdiction.

===Alternative taxes===
Some jurisdictions, particularly the [[Alternative minimum tax|United States]] and many of its [[State income tax|states]] and [[Taxation in Switzerland#Corporate taxation|Switzerland]], impose the higher of regular income tax or an alternative tax. Switzerland and U.S. states generally impose such tax only on corporations and base it on capital or a similar measure.

===Administration===
Income tax is generally collected in one of two ways: through [[Withholding tax|withholding]] of tax at source and/or through payments directly by taxpayers. Nearly all jurisdictions require those paying employees or nonresidents to withhold income tax from such payments. The amount to be withheld is a fixed percentage where the tax itself is at a fixed rate. Alternatively, the amount to be withheld may be determined by the tax administration of the country or by the payer using formulas provided by the tax administration. Payees are generally required to provide to the payer or the government the information needed to make the determinations. Withholding for employees is often referred to as "pay as you earn" ([[Pay-as-you-earn tax|PAYE]]) or "pay as you go."

Income taxes of workers are often collected by employers under a [[withholding tax|withholding]] or [[pay-as-you-earn tax]] system. Such collections are not necessarily final amounts of tax, as the worker may be required to aggregate wage income with other income and/or deductions to determine actual tax. Calculation of the tax to be withheld may be done by the government or by employers based on withholding allowances or formulas.

Nearly all systems require those whose proper tax is not fully settled through withholding to self-assess tax and make payments prior to or with final determination of the tax. Self-assessment means the taxpayer must make a computation of tax and submit it to the government.  Some countries provide a pre-computed estimate to taxpayers, which the taxpayer can correct as necessary.

The proportion of people who pay their income taxes in full, on time, and voluntarily (that is, without being fined or ordered to pay more by the government) is called the [[voluntary compliance rate]].<ref name=":0">{{cite web|url=https://www.theatlantic.com/magazine/archive/2019/04/why-americans-dont-cheat-on-their-taxes/583222/|title=Why Americans Don't Cheat on Their Taxes|last=Chun|first=Rene|date=March 10, 2019|website=The Atlantic|language=en-US|access-date=March 10, 2019}}</ref>  The voluntary compliance rate is higher in the US than in countries like Germany or Italy.<ref name=":0" />  In countries with a sizeable [[black market]], the voluntary compliance rate is very low and may be impossible to properly calculate.<ref name=":0" />

===State, provincial, and local===
Income taxes are separately imposed by sub-national jurisdictions in several countries with federal systems. These include [[Income tax in Canada#Provincial and territorial personal income taxes|Canada]], [[Taxation in Germany#Trade tax|Germany]], Switzerland, and the [[State income tax|United States]], where provinces, cantons, or states impose separate taxes. In a few countries, cities also impose income taxes. The system may be integrated (as in Germany) with taxes collected at the federal level. In [[Income tax in Canada#Personal income taxes|Quebec]] and the United States, federal and state systems are independently administered and have differences in determination of taxable income.

===Wage-based taxes===
{{See also|Payroll tax}}
Retirement oriented taxes, such as [[Social security|Social Security]] or [[national insurance]], also are a type of income tax, though not generally referred to as such. In the US, these taxes generally are imposed at a fixed rate on wages or self-employment earnings up to a maximum amount per year. The tax may be imposed on the employer, the employee, or both, at the same or different rates.

Some jurisdictions also impose a tax collected from employers, to fund unemployment insurance, health care, or similar government outlays.

==Economic and policy aspects==
{{main|Tax#Economic effects}}
[[File:GDP per capita PPP vs PIT 2016.svg|thumb|[[Public finance|General government]] revenue, in % of GDP, from personal income taxes. For this data, the [[variance]] of GDP per capita with purchasing power parity (PPP) is explained in 27% by tax revenue]]

Multiple conflicting theories have been proposed regarding the economic impact of income taxes.{{efn|See, e.g., references in {{slink|Tax|Economic effects}}, {{slink|Economics|Macroeconomics}}, [[Fiscal policy]]}} Income taxes are widely viewed as a [[progressive tax]] (the incidence of tax increases as income increases).

===Effect on labour supply===
{{See also|Frisch elasticity of labor supply|The effect of income taxation on labour supply}}

Some studies have suggested that an income tax does not have much effect on the numbers of hours worked.<ref>Killingsworth 1983 and Pencavel 1986{{Full citation needed|date=June 2024}}</ref> Recent studies found a large [[price elasticity of supply]] due to reduction in [[Unemployment#Labor force participation rate|labor force participation rate]]s and [[human capital]] investment.<ref name="b013">{{cite journal | last=Keane | first=Michael P. | title=Recent research on labor supply: Implications for tax and transfer policy | journal=Labour Economics | volume=77 | date=2022 | doi=10.1016/j.labeco.2021.102026 | doi-access=free | article-number=102026 | url=https://unsworks.unsw.edu.au/bitstreams/960dcb86-30f8-478f-b8a7-1a3215f0cdc7/download | access-date=25 July 2025| hdl=1959.4/unsworks_80539 | hdl-access=free }}</ref>

The higher costs to labour and capital imposed by income tax causes [[deadweight loss|dead weight loss]] in an economy, being the loss of economic activity from people deciding not to invest capital or use time productively because of the burden that tax would impose on those activities. There is also a loss from individuals and professional advisors devoting time to tax-avoiding behaviour instead of economically productive activities.<ref>{{cite web |url=https://www.investopedia.com/terms/d/deadweight-loss-of-taxation.asp |title=Deadweight Loss Of Taxation |last=Kagan |first=Julia |date=March 15, 2022 |publisher=Investopedia |access-date=August 19, 2013}}</ref>

===Tax avoidance===
[[Tax avoidance]] strategies and loopholes tend to emerge within income tax codes. They get created when taxpayers find legal methods to avoid paying taxes. [[Lawmakers]] then attempt to close the loopholes with additional legislation. That leads to a [[vicious cycle]] of ever more complex avoidance strategies and legislation.<ref>{{cite web |url=https://www.taxpolicycenter.org/briefing-book/why-are-taxes-so-complicated  |title=Why are taxes so complicated? |date=May 2020 |publisher=Tax Policy Center |access-date=August 19, 2013}}</ref> The vicious cycle tends to benefit large corporations and wealthy individuals that can afford the professional fees that come with ever more sophisticated tax planning,<ref>{{cite news |last=Drucker |first=Jesse |date=April 18, 2012 |title=How to Pay No Taxes: 10 Strategies Used by the Rich |url=https://www.bloomberg.com/news/articles/2012-04-17/how-to-pay-no-taxes-10-strategies-used-by-the-rich |url-access=subscription |publisher=Bloomberg |access-date=August 19, 2013}}</ref> thus challenging the notion that even a marginal income tax system can be properly called progressive.

=== Bracket creep ===
''[[Bracket creep]]'' is usually defined as the process by which [[inflation]] pushes wages and salaries into higher [[tax bracket]]s, leading to [[fiscal drag]].<ref name="IFO">{{cite web |title=Hidden tax increases - the extra tax burden of the bracket creep and the expected impact of income tax rates 'on wheels' on tax reliefs |url=https://www.ifo.de/en/node/9346 |website=www.ifo.de |access-date=November 9, 2021 |language=en}}</ref><ref>{{cite journal |last1=Bohanon |first1=Cecil E. |title=The tax-price implications of bracket-creep |journal=National Tax Journal |date=December 1, 1983 |volume=36 |issue=4 |pages=535–538 |doi=10.1086/NTJ41862549 |s2cid=232213656 |url=https://www.journals.uchicago.edu/doi/abs/10.1086/NTJ41862549?journalCode=ntj |access-date=November 9, 2021 |issn=0028-0283|url-access=subscription }}</ref><ref>{{Cite web |last= |first= |date=September 29, 2021 |title=Bracket creep and its fiscal impact |url=https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Budget_explainers/Bracket_creep |access-date=September 16, 2022 |publisher=Parliament of Australia |language=en-AU}}</ref> However, even if there is only one tax bracket, or one remains within the same tax bracket, there will still be bracket creep resulting in a higher proportion of income being paid in tax. That is, although the marginal tax rate remains unchanged with inflation, the average tax rate will increase.

Most [[progressive tax|progressive tax systems]] are not adjusted for inflation. As wages and salaries rise in nominal terms under the influence of inflation they become more highly taxed, even though in real terms the value of the wages and salaries has not increased at all. The net effect is that in real terms taxes rise unless the tax rates or brackets are adjusted to compensate.

== Types of income ==
Many types of income are subject to income tax, which is very variable. It all depends on the country and its tax laws. In general, countries impose taxes on income from wages, salaries, interest, dividends, and rental income.<ref>{{Cite web |last=Scott |first=Michelle |date=February 21, 2022 |title=Income Definition: Types, Examples, and Taxes |url=https://www.investopedia.com/terms/i/income.asp}}</ref> The most typical ones are wage and salary, which are almost always subject to taxation withheld by employers. Some one-time payments such as bonuses paid to employees are taxable. Dividends and interest (stocks or bonds) are usually also taxed.<ref>{{Cite web |date=April 4, 2023 |title=Topic No. 403, Interest Received |url=https://www.irs.gov/taxtopics/tc403}}</ref> 

There is a very wide variation in the amount of taxation in different countries. For example, countries such as Singapore, Belgium and United Arab Emirates levy low income tax on interest and dividends, while countries such as Denmark, France and United States have very high income tax for this type of income. For profits that are earned by selling assets or a real estate (capital gains), the income tax varies between countries, and is different from for any other types of income. Rental income may also sometimes be subject to income tax, but many countries offer deductions or even exemptions for this type of income.<ref>{{Cite web |last=Lake |first=Rebecca |date=May 19, 2022 |title=Reducing Capital Gains Tax on a Rental Property |url=https://smartasset.com/taxes/how-to-avoid-capital-gains-tax-on-rental-property}}</ref>

==Around the world==
{{main|Tax rates around the world|International taxation}}

[[File:Individual Taxation Systems.svg|right|thumb|upright=1.8|Systems of taxation on personal income {{legend|#00FF00|No income tax on individuals}} {{legend|#0080FF|Territorial}} {{legend|#000080|Residential}} {{legend|#FF00FF|Citizenship-based}}]]
[[File:Payroll and income tax by country.png|thumb|350px|right|[[Payroll tax|Payroll]] and income tax by OECD Country in 2021]]
Income taxes are used in most countries around the world.  The tax systems vary greatly and can consist of [[flat tax|a flat fixed rate]], [[progressive tax|progressive]], or [[regressive tax|regressive]], structures depending on the type of tax.  Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons all the more difficult.

Countries that tax income generally use one of two systems: territorial or residential. In the territorial system, only local income – income from a source inside the country – is taxed. In the residential system, [[tax resident]]s of the country are taxed on their worldwide (local and foreign) income, while non-residents are taxed only on their local income. In addition, a very small number of countries, notably the [[Income tax in the United States|United States]], also tax their non-resident citizens on worldwide income.

Countries with a residential system of taxation usually allow deductions or credits for the tax that residents already pay to other countries on their foreign income. Many countries also sign [[tax treaty|tax treaties]] with each other to eliminate or reduce [[double taxation]].

Countries do not necessarily use the same system of taxation for individuals and corporations. For example, France uses a residential system for individuals but a territorial system for corporations,<ref>{{cite web |url=http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_highlight_2012_France.pdf |title=International tax - France Highlights 2012 |date=2012 |publisher=Deloitte |archive-url=https://web.archive.org/web/20121025173841/http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_highlight_2012_France.pdf |archive-date=October 25, 2012}}</ref> while [[Singapore]] does the opposite,<ref>{{cite web |url=http://www.fullermoney.com/content/2012-07-17/dttl_tax_highlight_2012_Singapore.pdf |title=International tax - Singapore Highlights 2012 |date=2012 |publisher=Deloitte |archive-url=https://web.archive.org/web/20130603162133/http://www.fullermoney.com/content/2012-07-17/dttl_tax_highlight_2012_Singapore.pdf |archive-date=June 3, 2013}}</ref> and Brunei taxes corporate but not personal income.<ref>{{cite web |url= http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_highlight_2012_Brunei.pdf |title=International tax – Brunei Darussalam Highlights 2012 |date=2012 |publisher=Deloitte |archive-url=https://web.archive.org/web/20121025173846/http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_highlight_2012_Brunei.pdf |archive-date=October 25, 2012}}</ref>

[[File:Tax rates on dividend income in OECD.svg|thumb|none|500px|Marginal statutory corporate income tax rate,  marginal statutory personal income tax rate in OECD]]
{{Clear}}

==Transparency and public disclosure==
Public disclosure of personal income tax filings occurs in [[Finland]], [[Norway]] and [[Sweden]] (as of the late-2000s and early 2010s).<ref name='R001012'>{{cite news |first=Anna |last=Bernasek |title=Should Tax Bills Be Public Information? |date=February 13, 2010 |url=https://www.nytimes.com/2010/02/14/business/yourtaxes/14disclose.html |work=The New York Times |access-date=March 7, 2010 }}</ref><ref>{{cite news |last=Stinson |first=Jeffrey |date=June 18, 2008 |title=How much do you make? It'd be no secret in Scandinavia |url=http://usatoday30.usatoday.com/news/world/2008-06-18-salaries_N.htm |work=USA Today |location=London}}</ref> In Sweden this information has been published in the annual directory ''[[Taxeringskalendern]]'' since 1905.

==See also==
*{{cat|Income taxes}}
* [[Redistribution of income and wealth]]
* [[Taxation as theft]]
* [[Wealth tax]]
* [[The effect of income taxation on labour supply]]

== Explanatory notes ==
{{Notelist}}

==References==
{{reflist}}

==External links==
{{Sister project links|Income tax}}
* [https://blogs.edu-visor.in/2022/07/02/what-is-income-tax-return-itr-in-india/ What Is Income Tax Return (ITR) In India]
* [http://www.infoplease.com/ipa/A0005921.html#ixzz0x3i3fPTZ History of the Income Tax in the United States — Infoplease.com]
* [http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_05/11/2013_526451 Greece - State collected less than half of revenues due last year]
* [https://web.archive.org/web/20140415064736/http://www-personal.umich.edu/~makotoh/research_files/Japan_disclosure.pdf THE EFFECT OF PUBLIC DISCLOSURE ON REPORTED TAXABLE INCOME: EVIDENCE FROM INDIVIDUALS AND CORPORATIONS IN JAPAN]
* [http://ec.europa.eu/taxation_customs/taxation/company_tax/transparency/index_en.htm European Commission: Transparency and the fight against tax avoidance] {{Webarchive|url=https://web.archive.org/web/20150628070151/http://ec.europa.eu/taxation_customs/taxation/company_tax/transparency/index_en.htm |date=June 28, 2015 }}

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