This is a tax levied on individual’s or a business’s income (a business here refers to corporations or other legal entities). There are different income tax systems having different degrees of tax incidence. Income taxation could be progressive, proportional or regressive. Individual income taxes usually tax the entire income of the individual – some deductions being permitted. On the part of corporate income taxes, the tax is usually on net income. Different systems give the definition of income tax differently; such as reduction according to the number of children supported.

The Principles of Income Tax
Tax net: this points to the payment types that are taxed, which comprised of personal earnings (wages), business income and capital gains. Various incomes may vary in their rates and a number of such incomes may not be taxed at all. When realized or earned, capital gains may be taxed – an instance is when shares are sold; it can also be taxed when incurred- an instance is when shares appreciate in value.  Some income types may be seen as personal income comparable to wages; example is interest on bank savings; or as a realized property gain comparable to selling shares. A strict definition of earnings is where labor, investment or skill is required – wages for instance; they may widely be defined to include windfalls and others.  

As said earlier, tax rates may be progressive, regressive or proportional. The progressive rate taxes is sdifferentially based on how much has been earned; for instance, if one earns $5, 000 in the first earnings, the tax may be 5%, the next $5, 000 will be taxed 10% and any further income may be at 20% rate. On the other hand, a flat tax taxes all earnings at the same rate. A regressive income tax could embark on income tax up to a particular amount. Progressive income tax has acquired support from economists.

Individual income taxes commonly known as personal income taxes, is usually based on a pay-as-you-earn basis, while little corrections are done not long after the end of the tax year. These corrections take effect in one or two forms; payment to the government meant for taxpayers who did not pay sufficiently for the period of the tax year, the second form is the tax refunds from the government for taxpayers who paid more than should be.  There will always be available deductions of income tax systems, which lessen total tax liability through the reductions of total taxable income. They may permit losses from an income type to be counted against another.

The Payroll Tax
This is used for two kinds of taxes. Taxes which are required of employers to put out or withhold from employee’s pay; it is also called PAYE – Pay as You Earn tax. From these withholdings, the repayment of an employee’s personal income tax obligations is made. Where the payment is more than the obligation, the employee may qualify for a tax refund; alternatively, the excess tax paid can be carried over to future periods.