Why to you file an income tax?

Answer 1

For most people, their employer taxes taxes out of each paycheck and sends them to the government. This is called "withholding." Unfortunately, your employer does not really know how much tax you really owe the government. Most people have way too much tax taken out of their paychecks. Some don't have enough.

There are also other taxable sources of income. For example, if you have a savings account at the bank, the interest earned is taxable. If you own stocks or bonds, the profits you make are taxable. If you are receiving royalties on a book you wrote or an oil well on your property, those are taxable, too.

Since our tax system taxes people who earn a lot of money more than people who earn less money, you have to add all these taxable amounts together to determine exactly how much tax you really owe. And then you subtract deductions, credits, and exemptions.

At the end of the year, you fill out a form called a "tax return" to add all these numbers up and figure out how much tax you really owe. If your employer took out too much tax from your salary, the government will send you a check called a "refund." If your employer didn't take enough out, then you have to send the government a check. You file an income tax to figure out if you owe the government money or if the government owes you money.

And the other reason you file a tax is because if you earn more than a certain amount of money (or have certain financial transactions that the law says you have to report), then the law requires you to file tax. If you don't file tax, you may be fined, your property may be confiscated, and sometimes you might even be sent to jail.