Federal Income Tax Definition

Federal Income Tax Definition

A system administered by the IRS which collects money based on earned income. Federal income tax is collected through a withholding process where the employer deducts tax from the employee payroll.

Extended Definition
Federal income tax is a tax on income and is imposed by the U.S. federal government. The IRS collects the tax. Businesses (employers) must follow the IRS-determined tax schedule to submit timely taxes. Federal tax filing for employers does not occur yearly (unlike individual taxes) but throughout the year. Withholding federal income tax is a multi-layered process unlike Medicare and Social Security, which are based on a flat percentage.

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