Federal income tax liability is tax liability based upon various components. These include one's withheld income taxes, capital gains income, self employment income or tax payments or refunds. The amount a person has to pay in federal income tax varies from person to person and depends upon the calculation of the factors listed above.

What is One's Federal Income Tax Liability

Federal income tax liability is the method by which the United States federal government raises money in order to provide for federal government programs and expenditures. For example, federal housing, health care and other spending programs require federal taxpayer dollars which come from federal income taxes. Pursuant to the federal law, United States citizens must file federal income tax returns and pay taxes whenever his or her gross income meets a certain threshold; these thresholds vary from year to year and whether an individual owes any amount depends upon the amount of gross income the person makes, the number of dependents the person has, certain types of expenses and other types of income available to that person.

Determination of Federal Income Tax Liability

The actual determination of an individual's federal income tax liability is made based upon calculations which are derived from the completion of tax forms. These forms are generated by the Internal Revenue Service and require information provided by documents such as pay stubs, tax information regarding any dividends, income, alimony, capital gains, pensions, rents, royalties and unemployment you have received for the year. Furthermore, records which indicate income of IRAs, self employment tax and any other records of income generating assets provide the basis for the calculation. Moreover, receipts of child care expenses, medical expenses, self employment or business expenses and any other receipts for tax deduction purposes are used for the actual calculations.

How Federal Income Tax Liability Are Offset By State Income Tax Liability

In addition to paying federal income taxes, one is also liable to pay state and possibly city and/or local income taxes. However, there is an interplay between these state, city and/or local and federal income taxes. When filing a federal income tax return, one can deduct state, city and/or local income taxes paid by itemizing these income taxes, which can reduce the amount of federal tax liability one owes.

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IRS Frequently Asked Questions