Federal Income Tax

Definition

A tax levied by the United States federal government on individuals' and corporations' income. The amount of tax is based on a person's or corporation's income level.

Analogy

Think of Federal Income Tax like a group dinner where everyone pays according to what they ordered. Those who earn more (ordered more food) pay more, while those who earn less (ordered less food) pay less.

Related terms

Progressive Tax: This is a type of tax that takes a larger percentage from high-income earners than it does from low-income individuals. It's like if at the group dinner, those who ordered expensive dishes paid an extra fee because they can afford it.

Tax Bracket: These are ranges of incomes taxed at given rates. If you think about our dinner analogy, this would be like different menus for different spending levels - each with its own pricing rules.

IRS (Internal Revenue Service): This is the U.S. government agency responsible for collecting taxes and enforcing the Internal Revenue Code. They're like the restaurant manager making sure everyone pays their fair share for the meal.