Tax is a compulsory contribution levied by the government on income earners and the profits of those in business in order to raise funds for public expenditures. It comes in various forms as listed.
- Federal income tax : Collected from citizens who pay up to 39.6% of their earnings
- Medicare Tax: Used to support health care costs for retiree
- State income tax : Collected from citizens in most state
- Social security tax: Used to financially support retired people and people with disabilities
- Local income tax: Collected by towns and cities to fund city program
What is Taxation?
Taxation can be defined as the involuntary or compulsory fees levied on individuals or business entities by the government to generate revenues used for funding public institutions and activities.
The various type of tax with their correct description are;
1. Medicare tax: it is used to support healthcare costs for retired workers. An example is the Affordable Care Act (ACA) which became effective on the 23rd of March, 2010 and it's focused on making affordable health insurance available to qualified people or households through cost-sharing reductions and premium tax credits (subsidies).
2. Local income tax: it is collected by town, school district, counties and cities to fund city or community programs.
3. Federal income tax: it is collected from most workers, who pay up to 39.6 percent of their earnings. This type of tax is paid by employees with respect to the amount of money they receive as their wages or salary.
4. Social Security tax: it is used to provide financial support to retired and disabled workers. In the United States of America, the Social Security Administration (SSA) adopted the Old-Age, Survivors, and Disability Insurance (OASDI) program to support retired and disabled workers.
5. State income tax: it is collected from workers in most states to fund their budget and the rate differs from state to state.
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