{"id":353999,"date":"2022-08-19T07:44:44","date_gmt":"2022-08-19T12:44:44","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/tax\/tax-laws-forms\/federal-tax-laws.html"},"modified":"2025-02-13T14:00:00","modified_gmt":"2025-02-13T19:00:00","slug":"federal-tax-laws","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/tax\/tax-laws-forms\/federal-tax-laws.html","title":{"rendered":"Federal Tax Laws"},"content":{"rendered":"\n
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Federal Tax Laws<\/h1>\n
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\n By J.P. Finet, J.D.<\/a> | Legally reviewed by Steven Ellison, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

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Key Takeaways<\/h2>\n

When most people think of federal tax laws, they think of the federal income tax administered by the Internal Revenue Service. However, the IRS is also responsible for other aspects of the U.S. tax system, including assessing and collecting estate taxes, gift taxes, and employment taxes.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n

All U.S. citizens<\/a> and permanent residents<\/a> must meet their federal tax obligations, even if they are working overseas. While you will only pay taxes to state and local governments when you live within their borders, federal taxes apply regardless of where you live.
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The sections that follow provide a brief overview of federal tax law. Unfortunately, U.S. tax law is extremely complicated. This is why many Americans turn to professional tax preparers to prepare the tax forms that are part of their federal tax returns every year.<\/p>\r\n

U.S. Tax Code<\/h2>\r\n

Nearly all U.S. tax laws are included in the Internal Revenue Code<\/a> (IRC), which is part of the United States Code<\/a>. The U.S. Code is the set of laws that Congress established to set rules for the operations of the federal government. The official title of the tax code is U.S.C. Title 26, but most references to the IRC only include the section number. For example, you would say nonprofits are governed by Section 501(c)(3).<\/p>\r\n

The IRS then establishes specific rules that apply to many of the provisions in the IRC based on their reading of the statute. These rules are issued in the form of treasury regulations (the IRS is a division of the Treasury Department) that are included in the Code of Federal Regulations. But they are usually just called "tax regulations." The IRS also issues revenue rulings after taxpayers ask it to apply a law or regulation to a specific tax situation.<\/p>\r\n

Most states with an income tax<\/a> have a tax code modeled on the IRC. However, there are sometimes significant differences between the rules that apply to state income taxes and the federal rules.<\/p>\r\n

Federal Income Tax<\/h2>\r\n

The federal income tax is a tax imposed on the income of every U.S. citizen and resident, as well as all businesses operating in the United States. It requires filing an income tax return each year. For individual taxpayers, the amount they pay is based on their taxable income, which is the total of the wages, salaries, commissions, bonuses, investment income, and other payments they receive over the course of the tax year.<\/p>\r\n

The U.S. income tax system is based on progressive tax rates ranging from 10% to 37%, which is based on your income. Under a progressive tax system, the more income you receive, the higher your tax rate. The government sets specific income thresholds each year, so the cutoff point for each tax bracket changes.<\/p>\r\n

Yet, this tax rate only applies to the top portion of your earnings. Taxpayers pay the same rate for income up to each threshold. For example, your income tax rate might be as high as 24% based on your total taxable income, but you might only pay 10% on, say, the first $10,000 you earned. Again, the amount for each bracket usually changes every year. Check IRS guidelines to see the most current threshold amounts. <\/p>\r\n

It is important to remember that federal income tax liability is based on your taxable income, which often does not include all the income you earn each year. Taxable income is usually calculated as your adjusted gross income<\/a> (AGI), minus the standard deduction<\/a> or itemized deductions<\/a>. AGI is your income after subtracting certain adjustments, such as business expenses or student loan payments.<\/p>\r\n

The IRC also provides a tax exemption<\/a> for things like payments from certain retirement accounts and gifts under a specified amount.<\/p>\r\n

Types of Taxable Income<\/h3>\r\n

Taxable income generally falls into two categories: earned and unearned. Some examples of earned income include:<\/p>\r\n