Annual Personal Income Tax [Explained]

Taxpayers of personal income tax are obliged to submit a tax return for the annual income tax they earned in previous year by July 15. of this year for USA. The personal income tax is paid by those taxpayers who earned annual income in the territory of the USA in the amount of three times the amount of paid annual average salary per employee (according to the data of the republic authority responsible for statistics).

That is, the amount that is not subject to taxation is the annual income.

The tax liability is determined by the competent tax administration, in the procedure of control of the tax return submitted by the taxpayer, and a decision is issued.

Who are the taxpayers of personal income tax?

Personal income tax is paid by natural persons who earned income in the previous year that is higher than the non-taxable amount of income, as follows:

  • Resident – for income earned in the USA and abroad.
  • Non-resident – only for the income they earned in the USA.

Residents include those persons who have a permanent residence in the USA and all those persons who perform their business activity on its territory, as well as those persons who stay on its territory for 18 months or more for 12 months.

Residents also include natural persons who go abroad to work, but under certain conditions that are legally regulated. Thus, for example, residents include natural persons who go to work abroad and are employed in diplomatic and consular missions.

Non-residents include natural persons who earn income in the US, but do not meet the necessary conditions to be residents.

What income is taxed

The amount of income on which taxpayers pay tax is calculated by deducting from the total annual sum of taxable income taxes and contributions borne by the recipient of income, as well as the amount of income that is not subject to tax.

Revenue on which personal income tax is paid (this difference between the annual sum of taxable income and taxes and contributions borne by the recipient of income and the non-taxable amount) is the annual sum of the following income:

  • Earnings.
  • Taxable income from self-employment, which represents the profit of the entrepreneur.
  • Taxable income from copyright and other related rights and from industrial property rights.
  • Taxable income of athletes and sports professionals.
  • Takings from the property of LLCs by their founders.
  • Taxable income from leasing movable property.
  • Taxable income from the issuance of real estate.
  • Income earned and taxed in another country for resident taxpayers.
  • All taxable other income, from Article 85 of the Law on Annual Personal Income Tax.

Taxpayers are advised to consult with their certified accountant in any concerns and details related to taxable income and taxes.

Tax base

The difference between taxable income and personal deductions provided for in Article 88 of the Law of the USA on the annual personal income tax is the tax base. The law also regulates the right to deductions, which amount to:

  • 40 percent of the average annual salary per employee, for the taxpayer himself.
  • 15 percent of the average annual salary per employee, for a dependent family member of the taxpayer, but with the condition that on this basis the entire reduction must not exceed half of the amount of income subject to taxation.

The total amount of these personal deductions cannot exceed 50 percent of the taxable income.

If two or more family members are liable for the annual personal income tax, then the right to deduct can be exercised only for one of them.

In the event that two or more family members are liable for the annual personal income tax, one taxpayer, ie a dependent family member, may deduct on this basis.

Dependent family members include persons supported by an income taxpayer who make up the family community:

  • Spouse of the taxpayer.
  • Minor children or adopted children of the taxpayer.
  • Children or adopted children of the taxpayer, who are in regular schooling or during unemployment (but only if they live in the household with the taxpayer).
  • Grandchildren (but only if they are not supported by their parents and if they live in a household with a taxpayer).
  • Parents or adoptive parents of the taxpayer.

Tax rate

The Law on Personal Income Tax regulates that this annual tax is calculated and paid at the prescribed tax rate. Since the tax rate is progressive, an important element for applying a certain tax rate is the amount of taxable income.

If the taxpayer in the past year earned a taxable income of up to six times the average annual salary, then he pays the personal income tax in the amount of 10 percent.

A tax rate of 15 percent applies to all taxpayers who have earned an income that exceeds six times the average salary. In that case, however, up to the amount of six average annual salaries, a tax rate of 10 percent is applied, and the tax cannon amounts to 15 percent on the amount over that amount.

Tax return

The tax return for determining the annual personal income tax is, by the way, submitted to the tax authority competent according to the residence of the taxpayer in writing directly or by mail (organizational unit of the Tax Administration) or in electronic form, on the prescribed form.

In electronic form, the tax return is submitted using the electronic services of the Tax Administration, and the rulebook regulates the manner of its submission. The non-resident taxpayer submits the tax return to the organizational unit of the taxes of the administration on whose territory he earned income, ie according to the residence or domicile or according to the seat of the tax representative.

The annual personal income tax is determined by the competent tax authority, on the basis of data from the tax return itself, on the basis of data from tax books and on the basis of other data of importance for determining the tax liability.

The deadline for payment of taxes is no later than 15 days from the day of receipt of the decision on determining the annual personal income tax, which is submitted by the competent tax authority.

Notice: Information above is just for closer explaination of annual personal income tax but it is not an official law.

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