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What is income tax?
Quick answer
Income tax is a tax governments charge on the money people and businesses earn. It funds public services like roads, schools, and healthcare, and usually rises with how much you earn. You pay a percentage of your income to the government.
Key things to understand
- You pay a percentage of your income to the government.
- Most systems are 'progressive' — higher earners pay a higher rate.
- Deductions and exemptions lower the taxable amount.
- It funds public services and infrastructure.
People also ask
How is income tax calculated?
Generally by applying tax rates to your taxable income (income minus allowed deductions), often in rising brackets.
What is a tax bracket?
A range of income taxed at a particular rate; income above each threshold is taxed at the higher rate.
What are tax deductions?
Expenses or allowances you can subtract from income to reduce the amount that's taxed.
Part of the guide: Money Basics: Save, Borrow & Invest →