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What is the Internal Revenue Service (IRS)?

2016-12-02T10:13:54+00:00

The term 'Internal Revenue Service (IRS)' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

The Internal Revenue Service is an agency of the United States government. It is an entity that falls under the Department of the Treasury. The IRS’ purpose is to collect incomes taxes from businesses and working individuals. Workers generally pay in their incomes taxes to the IRS once a year. There are cases where groups pay taxes quarterly, as with businesses and independent contractors who make more than pre-determined amounts. In practice employers withhold most individuals’ taxes are from their paychecks.

For most individuals and small businesses, annual tax payments are due every year on April 15th. They pay these for the preceding year. Submitting these payments and forms is known as filing taxes with the IRS. The agency also permits extensions for filing if the requests are turned in ahead of the due date. Estimated payments have to come with the request for extension.

The Internal Revenue Service figures up taxes for individuals and businesses on a sliding scale. Individuals and entities that earn higher amounts are subsequently placed into higher tax brackets. The more individuals earn, the higher amount they will be required to pay to the IRS.

Any person who earns a yearly salary or who is paid wages by the hour will have taxes estimated and deducted directly from every payroll. This creates a situation where too much or too little money may be deducted throughout the year. Individuals who overpay will receive a refund. Those who underpay will have to make a payment to cover the additional tax if the appropriate amount did not come out of checks during the year.

Income taxes in the U.S. depend on the amount of net income. This is the income that remains once deductions have been calculated and subtracted from the total gross income. Individuals in the poverty bracket are not expected to pay any income taxes. Those people who earn $50,000 will pay around 20% of their net incomes. Over $100,000 earners are more likely to pay near 25% of net income earned. Sometimes those earning millions of dollars per year are able to use tax shelters, business write offs, and accounting strategies to receive substantial tax breaks and actually pay a lower percentage of their net income in taxes. This is why the middle class in America bears the greatest taxation burden.

The IRS was not the original Federal taxing authority in the United States. President Lincoln began its original predecessor the Bureau of Internal Revenue in 1862 with Congressional approval. They set this agency up to collect a new income tax to assist in paying for the Civil War. This tax was intended and enacted to be temporary at the time.

While the first income tax did become repealed in 1872, the government reinstated it again in 1894. Supreme Court legal challenges kept the income tax in a quasi legal state until the 16th Amendment came into force in 1913 and allowed income taxes to be permanent. Eventually the Bureau of Internal Revenue evolved into the Internal Revenue Service.

The IRS website offers consumers and businesses all of their forms in a convenient, downloadable format. It also features instructional pages to properly complete these tax forms. A frequently asked questions page helps individuals with general queries. For people who need assistance in filing, there are a variety of software programs available that will ask questions and prepare the relevant tax forms for individuals. These programs then file the forms online with the IRS. Another option is to hire and pay a CPA certified public accountant to complete and file their tax forms.

The term 'Internal Revenue Service (IRS)' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.