Definition
A tax imposed on income — broadly, on the gains, profits, and proceeds derived by individuals, corporations, and other entities from labor, business activity, investment, and other sources — after applicable deductions, exemptions, and credits are subtracted from gross receipts to arrive at the taxable base.
At the federal level in the United States, the income tax is a progressive levy administered under the Internal Revenue Code, with rates applied in graduated brackets to taxable income. Individual income taxes reach wages, salaries, self-employment income, capital gains, dividends, rents, and most other economic gains unless expressly excluded by statute. Corporate income taxes apply to the net income of business entities organized as corporations. Both systems permit deductions for specified costs of earning income and allow credits that reduce tax liability dollar-for-dollar.
State income taxes follow varied structures: some mirror the federal system closely, some impose flat rates, and a handful impose no income tax at all. Local income taxes — sometimes called earnings taxes or wage taxes — exist in certain cities and counties.
Common Language
Modern common usage (Wiktionary): A tax levied on earned and unearned income, net of allowed deductions.
Historical common usage (Webster's 1913): A tax upon income, gains, or profits, being a percentage levied on the annual income of individuals or corporate bodies.
The common and legal meanings are largely aligned, but the legal term carries substantial technical weight that everyday usage obscures. "Income" in the legal sense is a term of art with a contested and evolving definition: not every receipt is income, not every gain is realized for tax purposes, and the boundary between income and return of capital has been extensively litigated. The phrase "net of allowed deductions" in ordinary usage implies a simple subtraction; in practice, the structure of allowed deductions — above-the-line versus below-the-line, itemized versus standard, business versus personal — is among the most complex areas of the entire legal system.
Common Confusion
Income tax is sometimes loosely equated with payroll tax. They are distinct. Payroll taxes (Social Security and Medicare taxes under FICA) are imposed on wages up to statutory ceilings and fund specific social insurance programs; they are not income taxes and do not depend on net income or deductions. An employee may owe payroll tax on wages that generate no income tax liability at all, and vice versa. Historical sources that use "income tax" broadly may occasionally fold employment-related levies into the discussion — researchers should check which levy is actually at issue.
Income tax is also sometimes conflated with capital gains tax. Capital gains are generally included in income for tax purposes, but they are often taxed at preferential rates and governed by specialized rules; treating them as a separate tax category reflects common financial usage, not strict legal structure.
Why It Matters in Research
Constitutional dimension: The federal income tax required a constitutional amendment. The Sixteenth Amendment (1913) resolved the Supreme Court's ruling in Pollock v. Farmers' Loan & Trust Co. (1895) that a direct income tax without apportionment among the states was unconstitutional. Researchers working with pre-1913 federal sources will find income tax references in a constitutionally precarious context — Civil War-era federal income taxes (1861–1872) were enacted and later allowed to lapse; they operated under different legal justifications and should not be read as straightforward precedents for modern doctrine.
The meaning of "income" is not static. Early twentieth-century debates over whether income required realization, whether gains from property appreciation counted, and whether corporate surplus distributions constituted income to shareholders shaped doctrine that still operates today. Eisner v. Macomber (1920) remains a foundational if contested reference point for the realization requirement. Researchers should not assume that historical sources use "income" with modern precision.
State law divergence matters enormously. Because many states conform to the federal Internal Revenue Code on a rolling or static basis — and some conform only in part — a research question about state income tax liability can require tracing both federal statutory changes and the state's specific conformity elections. Historical secondary sources often address only federal law and may not flag that state treatment differed.
For nonprofit and tax-exempt entity research, the distinction between exempt income and unrelated business income tax (UBIT) is a recurring trap. An entity's tax-exempt status does not immunize all of its income from tax; income from activities unrelated to the exempt purpose may trigger UBIT liability. See the encyclopedia entries cross-referenced above.
Earned income receives specific treatment in multiple places in the Code, most notably through the Earned Income Tax Credit. Researchers should not assume that "income" and "earned income" are interchangeable — the distinction drives eligibility for significant credits and affects self-employment tax calculations.
Historical Dictionary Support
Black's Law Dictionary defines income tax as "a tax on the yearly profits arising from property, professions, trades, and offices," citing Stephens's Commentaries on the Laws of England. This definition is accurate in its core logic but thin by modern standards. The emphasis on "yearly profits" reflects the English schedular income tax tradition, in which different categories of income source were taxed under separate schedules — a structure the United States did not adopt. Bouvier's refers researchers only to the general TAX entry, offering no independent analysis. Neither historical dictionary addresses the constitutional dimension, the realization requirement, the progressive rate structure, or the treatment of deductions and credits — all of which are central to practical research. Historical dictionary support for this term is genuinely limited; researchers should treat these entries as period markers rather than substantive guides.
Jurisdictional Note
Federal, state, and local income taxes are legally independent systems with overlapping but non-identical definitions of income, deductions, and rates. Approximately nine states impose no individual income tax, while others apply flat or graduated rates that may diverge sharply from federal treatment. International dimensions — including treaties, foreign tax credits, and rules governing the taxation of nonresident aliens and foreign corporations — add further layers that are beyond the scope of domestic state-law research.
Encyclopedia Cross-Reference
Earned Income Tax Credit — The Law Mind Tax Encyclopedia, tax_43
Unrelated Business Income Tax (UBIT) — The Law Mind Tax Encyclopedia, tax_198