Do Citizens of the United States Pay Income Tax on All the Money They Earn?

by Mike Parker

The federal income tax became the law of the land with the passage of the 16th Amendment to the Constitution, which was ratified in 1913. The parameters for paying federal income tax have changed significantly over the years. In 1913 only the top 1 percent of the population paid income taxes, and then only at a rate of 1 percent of their net income, according to The National Archives and Records Administration. Whether a citizen of the United States must pay taxes on all of her income for the 2011 tax year is determined by current tax law.

Taxable Income

The Internal Revenue Service (IRS) is the federal agency that is tasked with collecting federal income taxes. The IRS considers all income to be taxable income unless it is specifically exempted from taxation by law. While income from wages and salaries received in the the form of money is one form of taxable income, it is by no means the only form of taxable income. You may also receive income in the form of goods or services. The IRS considers such items as the value of employee fringe benefits, bartered services, gambling winnings, interest and dividends, investment capital gains, rents, royalties and income from self-employment to be taxable income.

Tax Exempt Income

Not all of your income is subject to income taxation at the federal level. Proceeds from a life insurance policy that you received due to the death of the insured are not taxable. Qualified withdrawals from your Roth individual retirement account are not taxable income. You can exempt a portion of your income from taxation, based upon your filing status and dependency status.


You may be able to deduct certain amounts from your gross income in addition to your exemptions, although the types and amounts of these deductions may change from time to time based on current tax law. If you elect to itemize your deductions, you may deduct mortgage interest, certain taxes, a portion of your health care expenses, contributions to charitable organizations, certain educational expenses and business expenses.

U.S. Citizenship

Individuals who earn income in the United States must pay federal income tax, regardless of whether they are citizens of the United States or resident aliens. All individual taxpayers who meet certain requirements regarding gross income, dependency status, age and filing status are required to file a federal income tax return, whether or not they owe any federal income taxes. Failure to file a required federal income tax return may subject you to fines or criminal prosecution.

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