What Are Income Taxes?

Photo Courtesy: skynesher/iStock

Taxes may not be the most exciting financial topic, but they’re definitely important. In the United States, federal and state governments need money to provide certain services and benefits that we wouldn’t otherwise have access to, from Social Security payments to local environmental projects. The way these governments obtain that funding is largely by levying taxes on working adults and various business entities.

If you earn money each year, whether that’s from working at your job or another source, you’ll need to pay income taxes on those funds. But federal and state income tax systems can seem complicated, and you may be curious about what they are, how they work and what they mean for your personal finances. Fortunately, income taxes are relatively straightforward once you have a thorough understanding of the basics.