Internal Revenue Service
Internal Revenue Service Collections Help
The Internal Revenue Service (IRS) is a United States government agency tasked with collecting yearly state and income tax from working residents and businesses. Most citizens pay income tax to the IRS annually, though in some cases quarterly prepayments are required for freelancers and businesses that exceed a given income threshold. The IRS is part of the Department of the Treasury.
IRS income and state taxes are based on the calendar year with annual payments due no later than the following April 15th. The process of submitting IRS tax forms is called filing taxes. A request for an extension is acceptable, but estimated payments must accompany the extension request, which must be filed early.
IRS taxes are calculated on a sliding scale; with higher incomes commiserate with higher IRS tax brackets. Though the exact tables change yearly, simply put, the more you earn, the more you pay. For those paid hourly wages or earning a salary, estimated taxes are taken from each paycheck. At the end of the year one may get a refund for overpayment, or be required to pay more tax if an insufficient amount was deducted throughout the year.
IRS income tax is based on net income, or the amount left after legally allowed deductions have been taken from the gross (total) income. A person that falls within the poverty bracket may not be required to pay income tax at all, while a modest salary of 50,000 US Dollars (USD) per year can end up costing the earner approximately 20% of his or her net income in IRS taxes. Someone earning 120,000 USD annually might fall into a tax bracket closer to 25% of the net income.
Following this logic, it would seem that a person or business making millions annually would pay the IRS an even higher percentage. However, in cases of extremely high revenues various accounting strategies, tax shelters, and write-offs can result in significant tax breaks, and in some cases, tax refunds. For this reason the middle class is commonly said to shoulder the biggest IRS tax burden.
Forerunner to the IRS was the Bureau of Internal Revenue, which President Lincoln started in 1862 with the help of Congress. Income tax was earmarked to pay for civil war expenses and was intended to be temporary. In 1872 the income tax was repealed, only to be enacted once again in 1894. While the Supreme Court challenged the constitutionality of the 1894 statute based on a technicality dealing with population density and appropriate taxation, the way was later cleared. Ratification of the 16th Amendment in 1913 removed the problematic language, opening the door to continuing income tax laws. The Bureau of Internal Revenue eventually became the Internal Revenue Service, or the IRS.
Along with income tax, state taxes are also paid to the IRS where applicable. In states where state tax applies, it is withheld from each paycheck year round in addition to income tax. Since state tax is far less than income tax, the amount withheld normally satisfies the IRS requirement, and often a small refund may be in order for overpayment.
In the fall of 2006, the IRS began an outsourcing program to pay private collection agencies to collect income tax debts, awarding a percentage of collected monies to the agencies in fees. Watchdog groups are adamantly opposed to the government handing over sensitive, personal information on its citizens to outside agencies, particularly in a climate where identity theft is growing exponentially. The virtual lack of public outcry is likely attributable to the reasonable.