What is income tax?

Income tax is defined as a tax imposed by the government on an individual's earnings. This means that when a person earns income—whether it comes from wages, salaries, dividends, investments, or other sources—part of that income is required to be paid to the government in the form of taxes. The rate of taxation can vary based on several factors, including the individual's total income, tax deductions, and credits.

Governments use income tax to fund various public services and infrastructure, including education, healthcare, and national defense. Income tax systems can be progressive, which means that higher earners pay a higher percentage of their income in taxes compared to lower earners. This approach aims to reduce income inequality and support government spending on programs that benefit the broader population.

Other terms, such as a tax on overall spending or property ownership, serve different purposes and are not directly related to how income is taxed. Fees for financial services, while they may involve money, do not pertain to earnings in the same way that income tax does. Thus, understanding income tax is fundamental to comprehending how personal finance and governmental fiscal policies operate.