Tax is a compulsory payment which is imposed upon the gainers of income living in an economy. There are basically three main types of federal taxes imposed on the citizens of a nation.
Types of taxes
- Income tax
- Excise tax
- Payroll tax
These taxes differ from each other and the difference can be understood after understanding the meaning of each type of tax.
Income Tax :
- This type of tax is levied on the income earned by an individual or a corporate form of organisation against its profits.
- They are progressive in nature. Higher the level of income, higher burden of tax will be imposed.
- They are compulsory payments and cannot be refused. Refusal to pay tax may lead to heavy penalties and legal proceedings.
Excise Tax:
- The tax levied on purchase or sale of specific goods or activities inside or outside the boundaries of a state.
- The government collect this tax from the traders who deal in specific goods or activities.
Payroll Tax:
- This is the tax imposed on the wages of labors working for an employer on wage system.Payroll tax is paid by the employer on behalf of employees.
- Half the burden of payroll taxes is borne by employer. However the remaining half is deducted from the wages of the employees by the employer.
Therefore federal tax and its types are explained above as Income tax , Excise tax, and Payroll tax.
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