Taxation in the United States, like in various other countries, is quite a complicated affair. The federal government of the United States imposes an annual progressive tax on the income of individuals, companies, corporations and entities like partnerships, trusts and estates. In the USA, the Internal Revenue Service (http://www.irs.gov/) is the governing body for taxation which is responsible for collecting taxes as well as implementing tax laws and reforms. Apart from these federal taxes, several states and municipal governments also impose income taxes. As a resident of New York City you are expected to pay federal, state and city taxes.
There are two major classifications of income for an individual. The first is ordinary earned income which is distributed as wages, salaries, business profit and the second is investment income which comes from dividends, mutual funds and real estate. Capital gains tax is usually applicable to invested income. Short term capital gains which accrue from an investment which is held for one year or less are taxed at the same rate as income is in the United States, though long-term capital gains, which accrue from assets that are held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15% and to 5% for individuals in the lowest two income tax brackets. These reduced tax rates are effective through 2010 and if they are not extended, then long term capital gains tax will revert back to its pre-2003 level which was 20%.
An individual’s tax bracket in the US is determined not only by the level of the person’s income but also according to his or her filing status. Currently there are six income tax brackets which correspond to various income levels and the prevailing tax rates that range from 10% to 35% and four main classifications namely single, married and filing jointly (widows and widowers fall under this category), married and filing separately and head of household.
However in the USA you are not taxed on every dollar that you earn but are allowed certain standard and itemized deductions that somewhat reduce your tax liability. Fairmark.com which publishes several books on the complex system of US taxation offers a guide to US Taxes on its website at (http://www.fairmark.com/). Like federal taxes , state and city taxes in New York City also differ with various income levels.
The IRS expects you to pay for taxes for the current tax year (January to December) by the 15th of April of the following year – for example, taxes for 2009 are expected to be paid by April 15 2010. This deadline may be extended by a day if the filing day falls on a non working day i.e. a weekend. Your state and city taxes are due on the same day that you file your federal taxes.