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Income tax = tax on income, from whatever source (i.e., work, investments, gambling/lottery, prizes, illegal sources, etc.) Payroll tax = tax on wages earned (
by rprasad 14y ago
Income tax = tax on income, from whatever source (i.e., work, investments, gambling/lottery, prizes, illegal sources, etc.)
Payroll tax = tax on wages earned (i.e., taxes paid by an employer to an employee) which go toward Medicare, SS, etc. Independent contractors do not receive wages (i.e., they are not on a payroll), so they make their Medicare/SS contributions through separate but similar taxes on their contracting income. As another commenter has pointed out, these Medicare/SS contributions are generally referred to as FICA (Federal Insurance Contributions Act) taxes, after the act authorizing their collection.
- artsrc 14y ago> Income tax = tax on income, from whatever source (i.e., work, investments, gambling/lottery, prizes, illegal sources, etc.) I think that would be a good thing, but a lot of income from investments is categorized as capital gain, and this is not counted the same way as other income.
- rprasad 14y agoNo, capital gain income is still considered income for income tax purposes. Only certain types of capital gain are eligible for the special capital gains rates, and only long-term capital gain is eligible for the lowest rates (i.e., 15%). For example, collectibles are taxed at a 28% rate, recapture income is taxed at a 25% rate, and short-term income is subject to the graduated ordinary-income tax scheme.