Direct tax facts for kids
A direct tax is a type of tax that you pay directly to the government. This tax cannot be passed on to someone else. You, or your organization, are responsible for paying it. It's different from an indirect tax, which is paid by someone else, like a store, who then adds it to the price of something you buy. For example, a tax on your property is a direct tax. But a tax on the sale of that property (like sales tax) would be an indirect tax.
Contents
Understanding Income Tax
An income tax is a tax that governments collect from people and businesses based on the money they earn. This money is called their income.
How Income Tax Works
In many countries, including the United States, businesses and individuals must file an Income Tax Return every year. This report tells the government how much money they earned. It also helps them figure out if they owe more tax or if they will get a tax refund (money back). Income tax is a very important way for governments to get money to pay for public services.
The 16th Amendment and Income Tax
In the U.S. Constitution, there was a big difference between indirect and direct taxes. Because of this, the federal government needed a special change to the Constitution to collect an income tax. This change was the Sixteenth Amendment, which was approved in 1913.
Before this amendment, any direct tax collected by the federal government had to be divided among the states based on their population. This was almost impossible to do. So, the federal government mostly collected indirect taxes, like tariffs (taxes on imported goods). The Sixteenth Amendment made it possible for the federal government to collect income tax directly from people and businesses.
What is Corporate Tax?
Another type of direct tax is the corporation tax. This tax is collected from the profits earned by corporations and other companies.
In the United States, the federal corporate tax is a direct tax, but it's different from income tax. It taxes a company's net income (their profits after expenses), not their gross income (all the money they made before expenses). Companies can usually subtract most of their business expenses before this tax is calculated. Corporate tax only applies to corporations. It does not apply to other business types like partnerships or sole proprietorships.
Property Tax Explained
Property tax, sometimes called a millage tax, is a tax on property that the owner must pay. These taxes are usually collected by local governments. The amount you pay is based on a set value of the property.
Money from property taxes is often used to fund local services. These can include schools, community safety (like police and fire departments), and local infrastructure (like roads and bridges). The term "mill" refers to one one-thousandth of a dollar. So, a millage rate is the amount of tax collected for every $1,000 of property value. For example, if the millage rate is 3 mills (which is 3 tenths of a penny per dollar), a property valued at $300,000 would have a tax of $900.
Related pages
See also
In Spanish: Impuesto directo para niños
