Editing Income tax (section)

==Common principles==
While tax rules vary widely, certain basic principles are common to most income tax systems. Tax systems in Canada, China, [[Taxation in Germany|Germany]], [[Income tax in Singapore|Singapore]], the United Kingdom, and the United States, among others, follow most of the principles outlined below. Some tax systems, such as [[Income tax in India|India]], may have significant differences from the principles outlined below. Most references below are examples; see specific articles by jurisdiction (''e.g.'', [[Income tax in Australia]]).

===Taxpayers and rates===
Individuals are often taxed at different rates than corporations. Individuals include only human beings. Tax systems in countries other than [[Entity classification|the US]] treat an entity as a corporation only if it is legally organized as a corporation. Estates and trusts are usually subject to special tax provisions. Other taxable entities are generally treated as partnerships. In the US, many kinds of entities may elect to be treated as a corporation or a partnership. Partners of partnerships are treated as having income, deductions, and credits equal to their shares of such partnership items.

Separate taxes are assessed against each taxpayer meeting certain minimum criteria. Many systems allow married individuals to request [[Income tax in the United States#Federal income tax rates|joint assessment]]. Many systems allow [[Combined reporting|controlled groups]] of locally organized corporations to be jointly assessed.

Tax rates vary widely. Some systems impose [[Progressive tax|higher rates on higher amounts of income]]. Tax rates schedules may vary for individuals based on marital status.{{efn|See, ''e.g.'', rates under the [[Taxation in Germany#Income tax for residents|Germany]] and [[Income tax in the United States#Federal income tax rates|United States]] systems.}} In India on the other hand there is a slab rate system, where for income below INR 2.5 lakhs per annum the tax is zero percent, for those with their income in the slab rate of INR 2,50,001 to INR 5,00,000 the tax rate is 5%. In this way the rate goes up with each slab, reaching to 30% tax rate for those with income above INR 15,00,000.<ref>{{cite news |title=Income Tax Slabs - Economic Times |newspaper=The Economic Times|url=https://economictimes.indiatimes.com/wealth/tax/latest-income-tax-slabs/articleshow/62751981.cms}}</ref>

=== Residents and non-residents ===
Residents are generally taxed differently from non-residents. Few jurisdictions tax non-residents other than on specific types of income earned within the jurisdiction. See, ''e.g.'', the discussion of taxation by [[Income tax in the United States#International aspects|the United States of foreign persons]]. Residents, however, are generally subject to income tax on all worldwide income.{{efn|The [[Taxation in Germany#Income tax for residents|German system]] is typical in this regard.}} A handful of jurisdictions (notably [[Income tax in Singapore|Singapore]] and Hong Kong) tax residents only on income earned in or remitted to the jurisdiction. There may arise a situation where the tax payer has to pay tax in one jurisdiction he or she is tax resident and also pay tax to other country where he or she is non-resident. This creates the situation of Double taxation which needs assessment of Double Taxation Avoidance Agreement entered by the jurisdictions where the tax payer is assessed as resident and non-resident for the same transaction.

Residence is often defined for individuals as presence in the jurisdiction for more than 183 days. Most jurisdictions base residence of entities on either place of organization or place of management and control.

===Defining income===
Most systems define income subject to tax broadly for residents, but tax nonresidents only on specific types of income. What is included in income for individuals may differ from what is included for entities. The timing of recognizing income may differ by type of taxpayer or type of income.

Income generally includes most types of receipts that enrich the taxpayer, including compensation for services, gain from sale of goods or other property, interest, dividends, rents, royalties, annuities, pensions, and all manner of other items.{{efn|See, ''e.g.'', [[Income tax in the United States#Taxable income|gross income in the United States]].}} Many systems exclude from income part or all of [[Pension|superannuation]] or other national retirement plan payments. Most tax systems exclude from income health care benefits provided by employers or under national insurance systems.

===Deductions allowed===
Nearly all income tax systems permit residents to reduce gross income by business and some other types of deductions.  By contrast, nonresidents are generally subject to income tax on the gross amount of income of most types plus the net business income earned within the jurisdiction.

Expenses incurred in a trading, business, rental, or other income producing activity are generally deductible, though there may be limitations on some types of expenses or activities. Business expenses include all manner of costs for the benefit of the activity. An allowance (as a capital allowance or depreciation deduction) is nearly always allowed for recovery of costs of assets used in the activity. Rules on capital allowances vary widely, and often permit recovery of costs more quickly than ratably over the life of the asset.

Most systems allow individuals some sort of [[Tax exemption#Specific monetary exemptions|notional deductions]] or an amount subject to zero tax. In addition, many systems allow deduction of some types of personal expenses, such as home mortgage interest or medical expenses.

===Business profits===
Only net income from business activities, whether conducted by individuals or entities is taxable, with few exceptions. Many countries require business enterprises to prepare financial statements<ref>See, ''e.g.'', [http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml#ch4 UK requirements]</ref> which must be audited. Tax systems in those countries often define taxable income as income per those financial statements with few, if any, adjustments. A few jurisdictions compute net income as a fixed percentage of gross revenues for some types of businesses, particularly branches of nonresidents.

===Credits===
Nearly all systems permit residents a [[Foreign tax credit|credit]] for income taxes paid to other jurisdictions of the same sort. Thus, a credit is allowed at the national level for income taxes paid to other countries. Many income tax systems permit other credits of various sorts, and such credits are often unique to the jurisdiction.

===Alternative taxes===
Some jurisdictions, particularly the [[Alternative minimum tax|United States]] and many of its [[State income tax|states]] and [[Taxation in Switzerland#Corporate taxation|Switzerland]], impose the higher of regular income tax or an alternative tax. Switzerland and U.S. states generally impose such tax only on corporations and base it on capital or a similar measure.

===Administration===
Income tax is generally collected in one of two ways: through [[Withholding tax|withholding]] of tax at source and/or through payments directly by taxpayers. Nearly all jurisdictions require those paying employees or nonresidents to withhold income tax from such payments. The amount to be withheld is a fixed percentage where the tax itself is at a fixed rate. Alternatively, the amount to be withheld may be determined by the tax administration of the country or by the payer using formulas provided by the tax administration. Payees are generally required to provide to the payer or the government the information needed to make the determinations. Withholding for employees is often referred to as "pay as you earn" ([[Pay-as-you-earn tax|PAYE]]) or "pay as you go."

Income taxes of workers are often collected by employers under a [[withholding tax|withholding]] or [[pay-as-you-earn tax]] system. Such collections are not necessarily final amounts of tax, as the worker may be required to aggregate wage income with other income and/or deductions to determine actual tax. Calculation of the tax to be withheld may be done by the government or by employers based on withholding allowances or formulas.

Nearly all systems require those whose proper tax is not fully settled through withholding to self-assess tax and make payments prior to or with final determination of the tax. Self-assessment means the taxpayer must make a computation of tax and submit it to the government.  Some countries provide a pre-computed estimate to taxpayers, which the taxpayer can correct as necessary.

The proportion of people who pay their income taxes in full, on time, and voluntarily (that is, without being fined or ordered to pay more by the government) is called the [[voluntary compliance rate]].<ref name=":0">{{cite web|url=https://www.theatlantic.com/magazine/archive/2019/04/why-americans-dont-cheat-on-their-taxes/583222/|title=Why Americans Don't Cheat on Their Taxes|last=Chun|first=Rene|date=March 10, 2019|website=The Atlantic|language=en-US|access-date=March 10, 2019}}</ref>  The voluntary compliance rate is higher in the US than in countries like Germany or Italy.<ref name=":0" />  In countries with a sizeable [[black market]], the voluntary compliance rate is very low and may be impossible to properly calculate.<ref name=":0" />

===State, provincial, and local===
Income taxes are separately imposed by sub-national jurisdictions in several countries with federal systems. These include [[Income tax in Canada#Provincial and territorial personal income taxes|Canada]], [[Taxation in Germany#Trade tax|Germany]], Switzerland, and the [[State income tax|United States]], where provinces, cantons, or states impose separate taxes. In a few countries, cities also impose income taxes. The system may be integrated (as in Germany) with taxes collected at the federal level. In [[Income tax in Canada#Personal income taxes|Quebec]] and the United States, federal and state systems are independently administered and have differences in determination of taxable income.

===Wage-based taxes===
{{See also|Payroll tax}}
Retirement oriented taxes, such as [[Social security|Social Security]] or [[national insurance]], also are a type of income tax, though not generally referred to as such. In the US, these taxes generally are imposed at a fixed rate on wages or self-employment earnings up to a maximum amount per year. The tax may be imposed on the employer, the employee, or both, at the same or different rates.

Some jurisdictions also impose a tax collected from employers, to fund unemployment insurance, health care, or similar government outlays.