Income Tax Definition

A tax imposed on financial income, income tax forms the foundation of the US tax base. Income tax is often also assessed by states and municipalities. Not all income is subject to income tax-so-called exempt income is not, and non-exempt income can be reduced prior to paying taxes by using standard or itemized deductions. The US first imposed income tax during the War of 1812 to repay war expenses and after that bill was paid income tax was halted-for a while. It proved so popular among politicians, however, that it’s been with us ever since. While it’s fun to imagine taking home all the money you earn, the reality is that you’re going to pay income tax on most of it. From time to time you hear somebody explaining that income tax is illegal and that you don’t have to pay it. Those guys are all either in prison or on their way to prison for-you guessed it-tax evasion.