The New Student's Reference Work/Income Tax

In′come Tax.  The U. S. Tariff (q. v.) of 1913 imposes a tax of from 1% (“normal”) to 6% (“additional”) payable to internal revenue collector for each district, on incomes above $3,000, rate increasing with income up to $500,000.  Exact interpretation of the law, as in the case of other laws, will depend to some extent on individual circumstances which differ greatly, but the following analysis will enable anyone to answer the great majority of important questions that arise:

Married couples are entitled to an aggregate exemption of $4,000.  The other exemptions are:  Salaries of president, federal judges and employes of states and political divisions thereof; stock dividends, as these have already paid the Corporation tax; interest on obligations of the U. S., or political subdivisions thereof; proceeds of life insurance policies.

Net profits are determined in the usual way, by deducting expenses, other than living expenses, bad debts and other losses.  The customary deduction for depreciation of property, stock, etc., in each line of business, is also allowed.

On incomes above $20,000 and not exceeding $50,000 the “additional” tax is 1% and so up to incomes of $500,000 and above.

Example.  A tax on bachelor’s income of $600,000 (limitations within which additional taxes are levied are shown in parentheses):

Normal Tax (1%) on $600,000 (less $3,000) . . . . . $ 5,970
$30,000 ($20,000 to $50,000) at 1% additional . . . 300
$25,000 ($50,000 to $75,000) at 2% additional . . . 500
$25,000 ($75,000 to $100,000) at 3% additional . . 750
$150,000 ($100,000) to $250,000) at 4% additional 6,000
$250,000 ($250,000 to $500,000) at 5% additional 12,000
$100,000 (income above $500) at 6% additional . . 6,000
Total tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,020

Returns (written and sworn) giving gross income and exemptions must be made between January 1 and March 1 for preceding calendar year on forms furnished on application by collector.  Banks also usually furnish forms to depositors.  Only persons having taxable incomes are required to make returns except as indicated in next two paragraphs.

Tenants and all other persons or organizations paying salaries, rent, interest or other forms of income of individuals in excess of $3,000 (except proceeds from life insurance contracts other than annual interest payments) must withhold “normal” tax (1%) and turn it over to the government unless landlord or other payee files sworn statement with tenant or other payer that his income, or any part of it, is exempt.  Payer must make return showing portion of income of each person from which the “normal” tax has been thus withheld.

Incomes from bonds and similar corporate obligations regardless of amount, must be withheld at source unless payee attaches exemption certificate. “Normal” taxes only are collected “at source;” “additional” taxes from person who receives the income. Incomes irregular in amount (as those of commission agents, farmers, merchants and from fees) are not taxable “at source.”

Penalties.  For false statements, failure to return or to pay taxes by times specified heavy penalties are provided.

Japan, England, Germany, Holland, Italy, Austria, Denmark, Switzerland, Australia and New Zealand have income tax laws.