What is Income Tax?

The definition of income tax is the mandatory tax imposed by government entities onto businesses and legally employed citizens. In the U.S., income tax is collected and enforced by the Internal Revenue Service, or IRS. The IRS define income tax levies on an individual basis, according to the taxable net income or revenue of a given person or organization.

A broader income tax definition includes the reasoning behind the taxes imposed—that is, to fund government operations. Income taxes are calculated and paid annually, and are adjusted by the specific deductions available to an individual or business.

Subscribe to the Sage Advice newsletter, and receive our latest advice direct to your inbox.