If you have significant income from any source, you may be subject to tax. However, there are different categories and requirements for employees, self-employed individuals, or both. The types of US taxpayers and their responsibilities are explained below.
What is a taxpayer?
A taxpayer can be an individual or organization that is required to pay taxes to the federal, state or local government. Taxes paid by individuals and businesses are a major source of government revenue. In the United States, individual taxpayers are generally required to file and pay their federal and state taxes each year. Businesses are also required to file annual tax returns but are generally required to plan ahead and pay estimated taxes periodically throughout the year.
Single Taxpayers
Taxpayers are considered single if they are single, divorced, registered domestic partners, or single under state law on the last day of the tax year. Heads of households and widows are not considered “single” under the tax law. There is a minimum income threshold for unmarried taxpayers, above which they are required to file a tax return.
Head of household
Ahead of the household is a single or unmarried taxpayer who lives with another eligible family member who pays at least 50% of the household’s living expenses and maintains the household for at least half the year. This means that the taxpayer must pay more than half of the rent, mortgage, utilities, insurance, property tax, food, repairs, and other general household expenses. Eligible family members include dependent children, grandchildren, siblings, and grandparents, for example.
Spouses living together
Two taxpayers married during the year may file a joint tax return. Filing a joint return allows spouses to report their income and deductions on the same tax return. By filing a joint return, you may be entitled to a larger tax refund or a smaller tax liability than usual.
A joint return is best if only one spouse has a higher income. If both spouses work and have large and unequal deductions for income and expenses, filing separately is best.
Married Couples Filing Separately
Married filing separately refers to a tax system in which married taxpayers file separate returns for their income, deductions, and credits. Separate tax returns are attractive to married couples who find that their income structure results in a higher tax rate than if they had filed separate returns. If one spouse has significant medical expenses, various itemized deductions, and certain exemptions, filing separately may have tax advantages.
Limited Taxpayers
We’ve covered USA income taxpayers, but what about those who own a limited company? Anyone who owns a limited company must file a tax return. All limited companies must be registered with the Companies Registration Office before they can start trading. They can also register for payroll (PAYE) and corporation tax at that time. Company directors can create a login and password for the government portal by obtaining a password and authorization code from the head office.
The easiest way to file corporate tax returns is electronically using the slips on the government website, but in some cases, it is also possible to file a paper CT600 form. Corporations pay income tax on the same 12-month accounting period as individual taxpayers.
PAYE taxpayers
People who receive a salary through their employer are considered PAYE taxpayers. They pay income tax on a “pay for work” (PAYE) basis. This also applies to certain pensioners.
Under PAYE, employers and pension providers withhold income tax and National Insurance contributions before paying pensions and wages. The employer withholding rate depends on the HMRC tax code. The tax code determines the rate of tax a taxpayer must pay. And whether they are entitled to personal or spousal allowances. This means that taxpayers do not have to worry about paying extra taxes. Or filing a tax return when they receive their money.
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