The U.S. taxation system is a complex tax framework that funds federal, state, and local governments in the United States. U.S. taxation is primarily administered by the Internal Revenue Service (IRS), taxation in US based on a progressive tax model, meaning higher earners pay a larger percentage of their income. Here’s a brief overview of its key components.
Federal Income Tax
The cornerstone of U.S. taxation is the federal income tax, levied on individuals and businesses based on earnings. Taxpayers file annual returns (e.g., Form 1040) on or before April 15 of following fiscal year, reporting income from wages, investments, or self-employment. Tax rates in US , range from 10% to 37% (as of 2025), depending on income brackets. Deductions in US Tax are as mortgage interest and credits like child tax credit may reduce tax liability.
Payroll Taxes
US Govt levies Payroll taxes to fund the Social Security and Medicare schemes. Both Employees and employers each contribute rate 6.2% of wages (up to a cap) for Social Security and 1.45% for Medicare, with no income limit. Self-employed individuals pay both portions of payroll tax, totaling 15.3%, though they can deduct half.
State and Local Taxes
Most states impose income taxes, with rates varying widely—some, like Texas and Florida, have none, while others, like California, exceed 13%. Property taxes, levied by local governments, fund schools and infrastructure, based on home values. Sales taxes, applied to goods and services, differ by state and locality, ranging from 0% (e.g., Delaware) to over 10%.
Corporate Taxes
Businesses pay a federal corporate tax of 21% on profits, though deductions and loopholes often lower the effective rate. States may add their own corporate taxes.
Key Concepts
Taxpayers must understand filing status (e.g., single, married), exemptions, and the difference between gross and taxable income. Non-compliance risks audits or penalties.
The U.S. tax system reflects a balance of revenue generation and social policy, but its complexity often requires professional guidance. Staying informed ensures compliance and optimizes tax outcomes.
The U.S. taxation system
U.S. Taxation vs. Indian Taxation
The U.S. and Indian taxation systems fund government operations but differ in structure, rates, and deadlines. Here’s a brief overview with due dates and tax rates.
U.S. Taxation
The U.S. federal income tax is managed by the IRS and it is a progressive tax model , with rates from 10% to 37% (2025) across seven brackets. Individuals need to file the Form 1040 by April 15 annually, reporting wages, investments, or business income. Extensions defer this to October 15. Federal Payroll taxes—6.2% each for Social Security (up to $168,600 in 2025) and 1.45% for Medicare (no cap)—are withheld from paychecks. Self-employed individuals pay 15.3% total. State income taxes vary (0% in Texas to 13.3% in California), while property and sales taxes depend on locality. Corporate tax is 21% federally, due by April 15 (or March 15 for some entities), extendable to September 15.
Indian Taxation
India’s income tax, overseen by the Income Tax Department, also uses a progressive slab system. For 2025, under the new regime, rates range from 5% (₹3-6 lakh) to 30% (above ₹15 lakh), with no tax up to ₹3 lakh. The old regime offers more deductions but similar top rates. Individuals file ITR forms by July 31; late filings incur penalties. Businesses file by September 30. India’s Goods and Services Tax (GST), a unified indirect tax, ranges from 5% to 28%, replacing varied state levies. Corporate tax is 25% for companies with turnover up to ₹400 crore, otherwise 30%, due by March 31.
Comparison The U.S. taxation system
The U.S. has higher top income tax rates (37% vs. 30%) but lower corporate rates (21% vs. 25-30%). India’s GST simplifies indirect taxes, unlike the U.S.’s patchwork sales tax system. U.S. deadlines (April 15) are later than India’s (July 31), reflecting fiscal year differences. Both systems offer deductions, but India’s new regime prioritizes simplicity over exemptions, unlike the U.S.’s complex credits(deductions).
Understanding these basics—rates, dates, and structures—helps taxpayers navigate compliance in either country.
Declaration : for information and awareness purpose only.
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