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Terms and Definitions

What is income tax?

Updated: May 15, 2024

Income tax definition and meaning

Income tax is a type of tax that governments impose on the income businesses and individuals earn throughout the year. Employers generally must withhold federal income tax from their employees’ wages.

 

More about income tax

The US Constitution’s 16th Amendment, which took effect in 1913, authorizes the federal government to levy taxes on income, and is the basis for today’s federal income tax system. With the passage of the Current Tax Payment Act of 1943, employers are required to withhold and pay income tax on the behalf of their employees.

Using income tax in a sentence

“Unlike property taxes on what you own, and sales taxes on what you buy, income tax is levied on what you earn.”

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