different types of taxes essay

Types of Taxes: the US Tax System Explained

Last Updated: January 11, 2023

What Are Taxes — Tax Definition and Historical Facts

How do taxes work, what do taxes pay for, types of taxes in the usa.

“The hardest thing in the world to understand is the income tax,”

…said Albert Einstein.

So, what are the chances of understanding for the rest of us mortals then?

With the right guide, a bit better!

So, stay with us and learn all you need to know about:

• what is taxation
• how do taxes work, and what are they used for
• the types of taxes in the United States

Tax is a compulsory financial contribution of any individual, association, or institution that supports government projects and public expenditures . These payments are imposed and supervised by the official authorities.

And so, any failure to fulfill this legal obligation, including tax evasion and resistance, leads to strict law punishments.

Although new types of tax seem to be appearing every day, taxes are, in fact, nothing new.

The first confirmed example of taxation dates all the way back to ancient Egypt , somewhere around 3000 BC . Although, the chances are some older civilizations probably had different forms of tax collection even before that. Claims exist that Mesopotamian people paid taxes in the form of livestock starting from 4500 BC.

In the US, Abraham Lincoln was the first to introduce the income tax within the Revenue Act of 1861 . The income tax collection was supposed to help the Civil War efforts . And so, as soon as the war ended in 1872, the practice became unjustified, and it got aborted.

Tax in independent America got overturned a couple of more times after that and was, in general, hard to establish. Mainly because the nation still suffered the consequences of heavy Great Britain tax demands from colonial times.

Finally, at the beginning of 1913 , the idea of tax system implementation received the needed support and became a part of the Sixteenth Amendment .

Since then, the system evolved dramatically, and different types of taxes emerged. The latest Federal tax reform happened in 2020.

If you’d look at the world’s tax map or chart, you’d get to see a very colorful picture.

Tax collection works differently around the world. Also, tax rates differ significantly by country , from Aruba and Chad with close to 60% individual income tax rate to the Cayman Islands and Qatar with 0%.

The US stands somewhere in between with its seven different income tax brackets . The lowest being 10% and the highest 37% .

But before you pack your bags and start looking for your passport, let’s see how taxes work in the US and why they are necessary.

First of all, how are taxes paid?

There are three ways in which one can make their tax payment. These are:

• through tax expenditures

Direct taxes — as the name suggests, these are the taxes that a person or association pays directly to the government entity that levies it. Individual income tax, corporate taxes, and property taxes are all examples of direct tax.

Indirect taxes — are all taxes we pay on goods and services, including those of importing gas, alcohol, and tobacco. They are named indirect because you’re not directly paying them to the government or any of its entities. Instead, you give a set amount of tax money to a merchant who then settles tax with the government. Indirect taxes include sales taxes, value-added taxes, tariffs, and excise taxes .

Tax expenditures — Whenever you donate to charity or buy a house, you’re, sort of, helping your government. To repay you, the government then forgoes a chunk of your tax. These are tax expenditures in simplest terms. Or in other words, tax expenditures are the activities that you can perform to benefit the community. And, the government promotes these activities by offering tax deductions and tax credits in exchange.

How you pay your tax will define the tax rate.

• And so, for taxes paid directly, you will follow your tax bracket and pay the percentage of the whole taxable amount as defined by that tax bracket.
• Indirect taxes, on the other hand, are the same for everyone.
• With tax expenditures, you get to decide on the value and type of your contribution.

Who collects taxes in the States?

The United States collects taxes on three different levels.

The biggest chunk of the total tax amount goes to the federal government that collects income tax, excise taxes, custom duty taxes, tariffs, and similar. All these add to over two-thirds of the total tax deduction in the US.

Precisely, who collects income tax for the US government?

Governments typically hire different agencies or commissions to collect their income taxes. In the US, the Internal Revenue Service (IRS) is in charge of this formal duty .

State governments collect around 20% of all tax, mainly through sales and some excise taxes.

Local governments collect the rest. Most of the time, they impose taxes on property, land value taxes, and a part of taxes from sales.

Unfortunately, very often, tax collection jurisdictions are not clear-cut . Same property, income, or service can sometimes be taxed at a few different government levels without the taxes offsetting each other.

What are taxes used for in the US?

You know that feeling of thrill when the salary arrives?

And then the disappointment when you realize that the government gets to spend over one-third of it…

Would it make you feel any better if you’d known that, at least, that money ends up well-spent?

Well, let’s see if that’s the case.

Leading health programs

Did you know that about 18% of your tax bill goes to funding leading national health programs?

Medicaid, Medicare, and the Children’s Health Insurance Program (CHIP) all receive support from different types of taxes and taxpayers around the country.

Not too bad, right?

Social security

Social security has been one of the principal motives for tax collection since the beginning of the practice. Retirements, survivors’ benefits, and disability support all make a return from the social security treasury.

You work and contribute to the national budget through different tax types while you are young and healthy so that you don’t have to work when you reach the greater age.

With almost 23% of federal budget investments , social security is a mandatory segment of tax expenditures.

National defense and security

National security presents one of the major concerns of the government.

Then, it doesn’t surprise that the government reserves almost 16% of the federal budget to support the Department of Defense and Homeland Security Agency.

And so you follow and respect the long list of taxes daily.

But at least you sleep peacefully at night.

Safety net programs

Why do we pay taxes if not to help those in need?

Not everyone is in a position to enjoy different health programs and social security benefits. Unemployed citizens, low-income and some mid-income families, as well as underprivileged kids, often need additional assistance.

This aid is ensured by the government, with:

• unemployment insurance
• housing assistance
• food stamps
• underprivileged children programs

Around 9% of all federal taxes reach those who need help the most, one way or another.

Other expenditures

But this is not all.

Taxing in America ultimately serves many other purposes.

It helps take care of the interest on the national debt, benefits for federal retirees and veterans, and similar.

Furthermore, most infrastructural, educational, and scientific projects wouldn’t be possible without the government’s financial support.

So what makes the USA the way it is — it’s all of us!

For a while in US history, the only taxes that the government collected were import taxes or tariffs.

Imagine living in those times!

Instead, we have a quite complex tax structure — that even the brightest among us can’t follow at times without professional advisors or tax software.

Still, the better our understanding of that structure and our obligations as US citizens, the lesser the chances of unintended tax breaches and evasions.

So let’s now see — what are the different types of tax currently in force in the USA?

1. Income tax

Income tax statistics show that over 70% of US citizens don’t pay taxes on, at least, a portion of their income.

Some taxpayers accidentally forget to file it. Others do intentional evasions or are not fully aware of how it works.

To lessen this confusion, let’s first dig into what income taxes are and how they are categorized.

As their name suggests, income taxes are taxes that each individual or corporation needs to pay on their earnings or income . Different rules and regulations apply to each type of income tax. However, the common thing for most of these taxes is that they are marginal and progressive.

Marginal — means that there are different tax brackets or categories based on one’s taxable income amount. They are expressed in percentages.

Progressive — means that as your income increases, your taxes will increase too.

The two main types of income tax are the following:

Personal income tax

This is a tax that each citizen pays on their individual or household income that comes from wages, salaries, or investments.

Currently there are seven tax brackets for personal income in the States. They are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Here’s an income tax example:

If your taxable annual income is between $0 and $9,950 and you are a single person filing individually, your tax bracket is the lowest one of 10%. The same goes for married couples filing individually. Married couples filing together will fall under the same bracket with a combined income of up to $19,900.

As your single earnings rise above $9,951 to up to $40,525 or combined ones exceed $19,901 but not $81,051, you will move to the next tax bracket (22%), and so on.

However, as we work on understanding tax brackets, you should remember the following:

Moving to the next tax bracket doesn’t mean that all your taxable income will undergo that bracket. Instead, for your first $9,950, you will still have to pay only 10% of tax. And then, for the remaining of your total income between $9,951 and $40,525, the tax will rise to 12%.

The trend will continue until some of your income, currently above $523,601, reaches the 37% tax bracket.

Corporate income tax

A corporate income tax is usually a federally or state-imposed tax on all corporate revenues , excluding the costs of managing and executing the business .

Currently, more and more countries around the globe are lowering their corporate income taxes to support their corporations.

In the US, the federal corporate tax rate got lowered to 21%. That is thanks to the Tax Cuts and Jobs Act of 2017.

However, in some US states, some additional corporate tax rates by state apply.

2. Payroll taxes

These are also types of taxes deducted from your salary. However, they have the specific purpose of covering your social security and medical insurance expenses .

In some cases, your employer will take care of your payroll taxation, and in others, you will have to do it yourself.

And then, we have payroll taxes under the Federal Insurance Contribution Act, or FICA taxes — shared between the employer and the employee.

In any case, the combined payroll taxes in the USA rarely exceed 15%.

3. Capital gains tax

Once your investments pay off, the earnings become taxable. These types of taxes we pay on profit from investments are known as capital gains taxes.

Capital gains taxes, therefore, apply to dividends and interests. Likewise, they’re imposed on stocks and bonds earnings but only once realized.

The rate of the tax you’ll have to pay will depend on several factors, but mostly on your tax bracket and the duration of your investment.

And so, in the US, short-term capital gains taxes match the regular income taxes. However, the long-term ones have much more favorable rates.

4. Property tax

To have a nice house in a good neighborhood is pretty much everyone’s dream.

Until they get the property taxes explained.

Basically, the more valuable your house and the better its area — the higher your taxes will be . And if you don’t have the adequate income or savings to support that, your unpaid property taxes could diminish your house value and sale chances.

Your property tax debt could turn into a tax lien and your dream into a nightmare.

But, how do you pay property taxes?

You pay property taxes to your local government. To calculate your tax rate, they multiply the fair market price of your property and the tax rate of your area. The results are the taxes that typically range from 0.50% to 4% of the property value.

As an owner, you have the right to declare the property value, which then a professional tax assessor may accept or alter.

5. Sales tax

In simplest terms, the sales tax is what you see at the bottom of your receipt every time you visit a store. It’s a tax on things you buy .

Sales tax falls under the category of consumption tax . Unlike income or capital gain tax, consumption tax is imposed on people’s spendings and not on their earnings.

It is also an indirect tax because the consumer pays for it, but the merchant is responsible for money reaching the government.

The two main types of sales taxes are:

General sales tax

Each of the US states applies the general sales taxes. To calculate them, one should multiply the purchase value with the effective tax rate in that state.

Usually, it’s the state government that imposes the official tax rates. Alaska, Delaware, Montana, New Hampshire, and Oregon are exemptions here since they entrust this responsibility to their local governments.

Sometimes the state and the city taxes both apply, leading to higher total sales tax.

Excise taxes or sin taxes

You must’ve heard of another type of compulsory taxation called sin taxes.

Sin or excise taxes are also consumption taxes which, most of the time, consumers settle indirectly.

The name itself suggests that these are the taxes that apply to specific, often harmful, goods. These include tobacco, alcohol, cigarettes, casino gains , and similar.

The taxes, usually, get levied on both federal and state levels. Besides, the rates of these taxes are among the highest, with the obvious intention of discouraging consumers. Sin taxes are either charged as:

• Ad valorem tax — expressed in percentages so they can vary.
• Fixed tax rates — flat fees added to the regular cost of an item.

6. Estate tax and inheritance tax

People often mix up and interchange these two different kinds of taxes. And although they share the settlement of taxes on assets inherited from a deceased person , this is how they differ:

Estate taxes — are covered by the estate itself before its assets even reach the heirs. Inheritance taxes — are left for heirs to settle upon the inheritance receipt.

Both of these types of taxation could be difficult to implement and complex to administer. On top of that, they often lead to unsatisfactory economic outcomes such as poor estate planning or altogether abandonment.

As a consequence, more and more states are dropping the estate and inheritance taxes.

7. Gift tax

Yes, you read it well.

You need to pay taxes on gifts too!

Or, to be precise, if you’re the donor of the gift, you will need to report it and settle the gift tax. The recipients usually don’t pay for these types of taxes in the USA.

Gift taxes have been created on a federal level to minimize income and capital gains tax avoidance . Namely, taxpayers realized, at some point, that by transferring some of their profit to their friends or relatives, they can steer clear of paying most of their income taxes.

By introducing gift taxes, the country got a better insight into its investors’ actions.

Gifts, in this case, are only the contributions of financial value that the receiver doesn’t cover in total. Partial payments are allowed for the contribution to remain a gift.

Although these types of federal tax can turn out to be quite high, 18% to 40%, they are usually still lower than capital gains taxes. Besides, there are a few tax gift exemptions that make gifting away some of your assets worth considering.

• One can give an unlimited asset amount tax-free to their US citizen spouse (or up to $159,000 if the spouse is not a citizen of the US).
• Gifts for educational and medical purposes to a person or institutions are tax-free.
• That applies to the gifts to charitable and political organizations too.
• Gifts that don’t exceed in value the annual gift-tax exclusion rate are free of tax.

8. Tariff taxes

Also known as import duty, custom duty, or import tax , these types of taxes in the US have the following aims:

• to raise funds for local governments
• to promote locally-grown food and locally-produced goods by giving them the tariff-free advantage
• at times, tariffs may even serve for restricting certain countries from importing their products (by applying high tariff rates on those products)

In the USA, Congress determines the tariff rates.

Most often, these rates are based on:

• the imported good’s value
• and the importing country’s relationship with the USA.

Special rates for underdeveloped countries apply. The same goes for the countries that are under the international trade program.

To sum everything up:

• Whether we like it or not, taxes are present in almost every sphere of our lives.
• Different types of federal taxes can take more than one-third of all your assets each year.
• The more you learn about tax, the lesser chances for potential fines and losses.
• The crucial purpose of taxation is funding major public programs and projects and, ultimately, a GDP rise.
• Besides, paying taxes is everyone’s legal obligation. And, failure to do so can lead to a lot of problems.

Federal taxes are the money that the government collects from individuals and companies to invest in healthcare, social security, infrastructure, education, and similar. Examples of federal taxes are income taxes, property taxes, and sale taxes.

Taxes in the US are collected on federal, state, and local levels. The government hires trusted professional agencies to do the tax collection. On a federal level, that is the IRS.

We pay different types of taxes on most of our earnings, our purchases, and our property. The list goes on, but these are the main segments of our tax obligations.

Yes, paying taxes is everyone’s law obligation. Failing to do so may lead to severe financial penalties or even jail time.

The main difference is that tax evasion is an illegal practice of concealing tax obligations and information from the authorities, while tax avoidance is completely legal. Tax avoidance merely represents one’s righteous methods for taxable income reduction.

A direct tax is every tax that you pay directly to a government body. And indirect taxes are those you pay to a merchant or service provider as a mediator between you and the government.

The main types of taxes are:

• income taxes,
• capital gains taxes,
• property taxes,
• sales taxes,
• estate taxes,
• gift taxes,
• payroll taxes, and
• tariff taxes.

ABOUT AUTHOR

by Danka Delić

A human nature explorer disguised as a linguist. Maybe if I have traveled less and in fewer directions, I could’ve been an expert in one particular field. Instead, I’m just a passionate researcher, reader, and writer. The subjects that I always gladly cover are mostly from the world of finance, sociology, and psychology. My flying experience (both as a cabin crew and a pilot) taught me never to disregard the human factor. For that reason, I write all my articles in a way that every human can relate to in one aspect or another. In my free time, I am an animal lover (sometimes during work hours too).

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Financial Literacy

Course: financial literacy   >   unit 10.

• Real world: A Taxing Time
• Taxes intro

How taxes work

Why do we have taxes, which taxes do i pay.

• Income taxes : These are taxes you pay on the money you earn from a job, a business, or investments. The federal government and some state governments collect income taxes. The more you earn, the more you pay in taxes.
• Payroll taxes : These taxes are taken out of your paycheck to fund Social Security and Medicare, which provide retirement and health care benefits for older Americans. Both you and your employer contribute to payroll taxes. These taxes are taken out separately from your income tax.
• Sales taxes : When you buy goods and services, you might pay a sales tax. This tax is a percentage of the purchase price and is collected by state and local governments. The rate varies depending on where you live.
• Property taxes : If you own a home or other property, you'll pay property taxes. These taxes are based on the value of your property and help fund local services like schools and public safety. Property taxes are collected by local governments.
• Corporate taxes : Businesses pay taxes on their profits. These taxes are collected by the federal government and some state governments. Corporate taxes help fund various government programs and services.
• Estate and inheritance taxes : When someone passes away and leaves behind money or property, the government may collect estate or inheritance taxes. These taxes are based on the value of the assets and are collected by the federal government and some state governments.
• Excise taxes : These are taxes on specific goods, like gasoline, alcohol, and tobacco. Excise taxes are collected by federal, state, and local governments and are usually included in the price of the product.
• Hotel and occupancy taxes : When you stay in a hotel or other short-term rental, you might pay hotel and occupancy taxes. These taxes are collected by local governments and help fund local tourism and other community services.
• Toll taxes : When you use certain roads, bridges, or tunnels, you might have to pay a toll tax. These taxes are collected by state and local governments and help pay for the maintenance and construction of transportation infrastructure.

Check your understanding

• (Choice A)   excise tax A excise tax
• (Choice B)   payroll tax B payroll tax
• (Choice C)   income tax C income tax

Meet the tax collectors: federal, state, and local governments

What do taxes pay for, do i have to pay taxes if so, how much, want to join the conversation.

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The Three Basic Tax Types

Key Takeaways

• Taxes have a much bigger impact on our lives beyond just paying a little more for the things we buy. The better you understand them, the better equipped you are to make decisions about them.
• Sales taxes  are paid by the consumer when buying most goods and services. These taxes provide state and local revenue, funding services like education, transportation, and health care.
• Income taxes  are paid on many sources of income you might earn, like the taxes taken directly from your paycheck. They are major sources of revenue for the federal government, many state governments, and a few local governments.

Property taxes  generate revenue at a local level. They provide funding for everything from parks, to public safety services, to additional funding for schools.

• For example, if you earn $1,000 in a state with a flat  income tax  rate of 10%, $100 in income taxes should be withheld from your paycheck when you earn that income.
• If, a week later, you take $100 from your remaining earnings to purchase a new smartwatch in a jurisdiction with a 5%  sales tax , you’ll pay an additional $5 in taxes when you purchase that item.
• Altogether, $105 of your initial $1,000 in income has been collected in taxes, just not at the same time.
• Tax structures and levels vary greatly among  U.S. states  and  countries , as do the services they fund.
• Every dollar you pay in taxes affects how much of your income you get to keep, save, and spend, so understanding each tax type can help you make better decisions about everything from which job to take, to where to live, to how you vote.

One of the first lessons you learn about money as a kid is that the price on the tag may not be the same as the price on the receipt. Why? Taxes.

Taxes have a much bigger impact on our lives beyond just paying a little more for the things we buy.

And the better you understand them, the better equipped you are to make decisions about them.

All taxes can be divided into three basic types: taxes on what you  buy , taxes on what you  earn , and taxes on what you  own .

Every dollar you pay in taxes starts as a dollar earned as income. The main difference is the point of collection.

Sales taxes  are paid by the consumer when buying most goods and services.

These taxes provide state and local revenue, funding services like education, transportation, and health care.

The Individual Income Tax is a tax paid on many sources of income you might earn, like the taxes taken directly from your paycheck.

Income taxes  are major sources of revenue for the federal government and many state governments.

The third type of taxes are taxes on what you own—like homes, land, or vehicles—known as property taxes.

Every dollar you pay in taxes affects how much of your income you get to keep, save, and spend.

So, understanding each tax type can help you make better decisions about everything from which job to take, to where to live, to how you vote.

• Individual Income Tax
• Property Tax
• Corporate Income Tax
• Payroll Tax
• Capital Gains Tax
• Gross Receipts Tax
• Value-Added Tax (VAT)
• Inheritance Tax
• Download Primer: Primer: The Three Basic Tax Types
• Download Lesson: Lesson Plan: The Three Basic Tax Types
• Download Report: Assessment: The Three Basic Tax Types
• Download Report: Assessment Key: The Three Basic Tax Types

Level-up your tax knowledge with free educational resources—primers, glossary terms, videos, and more—delivered monthly.

University of Notre Dame

Notre Dame Philosophical Reviews

• Home ›
• Reviews ›

Taxation: Philosophical Perspectives

Martin O'Neill and Shepley Orr (eds.), Taxation: Philosophical Perspectives , Oxford University Press, 2018, 264pp., $55.00 (hbk), ISBN 9780199609222.

Reviewed by Matthew Braham, Universität Hamburg

Taxation is central to the existence of states. It is its income and expenditure. Taxation finances the production of goods and services that the market undersupplies, is the source of income for those in need, and is used to incentivize behaviour -- to encourage people to reduce the consumption of personally or socially or environmentally unhealthy things and practices. Tax policy is therefore a key element of the wherewithal of our personal lives. Yet, a quick search on work by moral and political philosophers on taxation will reveal an interesting fact: it is a subject that has not received much detailed attention. And, the work that has been produced is somewhat fragmented.

This collection aims at correcting this state of affairs by bringing together philosophers who work mostly at the intersection of philosophy and economics. We are offered 12 new essays that highlight taxation as a key issue for moral and political philosophers. As the editors, Martin O'Neill and Shepley Orr, point out in their introduction, taxation is an "irreducibly normative matter, and one which implicates a number of our concerns of social justice. When we think about issues of social justice in practice, we cannot avoid thinking at the same time about tax" (p. 2). Taxation is foundational to our thinking about property rights, democracy, and the nature and role of the state.

The volume is divided into two parts. Part I (seven essays) focusses on normative and conceptual questions. Part II (five essays) delves into a variety of policy issues. O'Neill and Orr's comprehensive introduction lays out the philosophical context for both parts. They begin with the stark and contrasting positions of Robert Nozick and John Rawls. In a memorable passage in Anarchy, State, and Utopia (1974), Nozick claimed that "Taxation of earnings from labour is on par with forced labor" (p. 169). In Nozick's libertarian world view, mandatory taxation is limited to providing for a minimal state that protects and enforces property rights only. Redistributive transfers for those in need are not morally permissible. Such transfers would be injustices, violations of just pre-tax entitlements. Providing for those in need is, rather, a task for charity. In contrast, Rawls believed that there are no pre-political constraints on property rights, which are themselves part of the "basic structure" of society. In the Rawlsian world, a tax system is just insofar as it is part of the overall system of rules and institutions that satisfy his two principles of justice. Hence, given that redistribution is required by Rawlsian justice, it follows that redistributive taxation is morally permissible.

Having staked out the Nozickean-Rawlsian divide, O'Neill and Orr situate the essays within the Rawlsian universe that had its fullest development in the now seminal treatment by Liam Murphy and Thomas Nagel in The Myth of Ownership (2002). Murphy and Nagel's standpoint is that "pre-tax income" has no special normative status; there are no primitive entitlements to property. Many of the essays engage directly with this thought and attempt to find a middle ground between the Rawlsian and Nozickean positions.

An illuminating feature of the collection is that it opens up what Alan Hamlin, in "What Political Philosophy Should Learn from Economics about Taxation", denotes as the "black box" technology of taxation. Political philosophers, he notes, are especially prone to call upon this technology to "put into effect whatever distribution of economic benefits and burdens that is required by the normative theory under discussion" (p. 20). Hamlin unpacks the black box with an elegant review and understanding of different economic theories of taxation: Optimal Taxation, the Political Economy of Taxation, and the Tax Constitution Approach. This is very refreshing and stands out from the stock "economics bashing" that many political philosophers -- even those who claim an economics background -- presumptively engage in without a whimper of thought and respect for the discipline. Hamlin notes that political philosophers with a non-ideal theory bent are well advised to study carefully and with an open mind what economists have to offer. It is fair to say that the collection provides the reader and the disciplines an intellectual programme that goes far beyond taxation.

Marc Fleurbaey's "Welfarism, Libertarianism, and Fairness in the Economic Approach to Taxation" immediately takes up the baton of optimal taxation discussed by Hamlin and defends it against the criticism set out in Murphy and Nagel's Myth of Ownership . Fleurbaey shows us that it is possible to enrich the orthodox optimal taxation theory of welfare economics with elements of libertarianism and fairness. Here, I believe we are observing progress in both philosophy and economics through careful modelling of normative principles bounded by weak descriptive conditions of rational choice. Again, critics of economics take note: Fleurbaey achieves his goal without a formula in sight; however, his formal work on taxation underlies the essay.

Geoffrey Brennan's "Striving for the Middle Ground: Taxation, Justice, and the Status of Private Rights" begins by directly engaging Murphy and Nagel and also by expanding on the Tax Constitution approach outlined by Hamlin. Brennan himself pioneered this approach together with James M. Buchannan in their influential The Power to Tax (1980). Brennan denotes his analysis as "quasi-Rawlsian". There is a methodological reason for this, because he asks what the "constitutional architecture" of society would deliver in terms of a tax system. But this is not about Rawls' Two Principles. Rather, it is an investigation into basic democratic procedures and the structure of private rights (that include property rights) and how these determine a just tax system. That is, the principles of taxation emerge from the interplay of constitutional elements. In an interesting twist to Nozick's "minimal state", Brennan discusses the "maximal state", which is the largest possible state subject to constitutional constraints, one of which is the system of private property rights. One of Brennan's thought provoking conclusions is that Rawlsian principles of justice in a capitalist society will not fully realize Rawls's own principles.

"Taxing or Taking? Property Rhetoric and the Justice of Taxation" by Laura Biron, is more traditionally philosophical. She, too, takes her cue from Murphy and Nagel, but her angle of analysis is that the starting point of thinking about the tax system is philosophical and jurisprudential thinking about property. In a sense, this is Nozick's line (although she comes to different conclusions) and Biron is engaging in a conversation with economists and asking them to go back to conceptual basics. And along with Brennan, she is skeptical about Murphy and Nagel's "myth of ownership".

Peter Vallentyne's "Libertarianism and Taxation" makes clear what a rich subject taxation is for moral and political philosophers. He argues that the moral doctrine that "individuals initially fully own themselves, that natural resources are initially unowned, and that individuals initially have certain unilateral moral powers (requiring no consent from others) to use and appropriate unowned natural resources" (p. 99) supports a variety of views on just taxation. Nozick's right-libertarian view that taxation beyond a charge for the protection of property rights is "on par with forced labor" is just one view. There are also sufficientarian (centrist) and left-libertarian views , with the latter breaking down into two sub-forms of equal-share and equal-opportunity libertarianism. Each of these views permit taxation over and above the Nozickean minimum.

Alexander W. Cappelen and Bertil Tungodden's "Tax Policy and Fair Inequality" is another prime example of an economic analysis that builds in substantive normative reflection. It also picks up where Fleurbaey left off. Cappelen and Tungodden aim to explore the shape of a liberal-egalitarian system (Rawlsian) and in particular to try and get around the well-known problems of responsibility-insensitivity that besets Rawlsian justice (avoiding exploitation of the hardworking and talented). One fascinating result is that they show precisely why political philosophers need to peer inside the "black box" of taxation. In their framework,

a progressive income tax system may have two opposing effects on fairness. It may increase the level of unfairness in society by eliminating fair inequalities reflecting differences in responsibility factors, but it may also reduce the level of unfairness in society by eliminating unfair inequalities reflecting differences in non-responsibility factors. (p. 121)

In other words, we are reminded of the falsity of what John Harsanyi once called the "all good things come together assumption". Desirable values are not always positively correlated. Another very appealing feature of this essay is that the authors cap their analysis with an empirical case study of their fair tax system using Norwegian data. The essay is a "must read" for the modern political philosopher eager to engage with policy-making.

The final essay in Part I is another piece of traditional normative analysis. "Beggar Your Neighbour (Or Why You Do Want to Pay Your Taxes)" by Véronique Munoz-Dardé and M. G. F. Martin takes issue with libertarian views on taxation, in particular that the needy are to be provided for by charity rather than via state redistribution. They argue that there are reasons why redistributive taxation instead of charitable giving would be favoured by the taxpayers themselves. The argument can be summed up as follows: mandatory taxation is simply a more efficient way of collecting and distributing resources for the needy. They write:

Even if you, as a well-meaning individual who keeps their life in good order, manage to provide a large amount in donations to various charities, still it is likely that you will be bothered in some way or another by further charitable organizations looking to raise their income to meet the demands on them. In such a world, the irritations of the double-glazing salesman, or the mortgage salesman, or the new phone deal, would pale in comparison with the campaigns run by the major charities seeking to meet the needs of the poor. (p. 138)

Munoz-Dardé and Martin argue that it is reasonable to reject such a system. This idea is crying out for a carefully constructed economic model that actually delivers a formal proof of the proposition. Until then, the jury is still out.

Part II begins with "The Case for a Progressive Benefits Tax" by Barbara H. Fried. Fried opens Hamlin's "black box" of taxation and investigates it from a "Tax Constitutional Approach". That is, we are presented with the question of whether we "should take the preferences of taxpayers into account in deciding how tax revenues are raised and spent", and are provided with the trite answer: "Of course we should". And it is observed that in a democracy we "automatically will", as these decisions are delegated to elected representatives. But as Fried points out, there is a lot more here than meets the eye. We are asked a difficult further question: is a majoritarian or a supermajoritarian decision rule the appropriate one for determining fiscal policy? Starting from a broadly libertarian premise that taxation is just if it is limited to provision of public goods that the market undersupplies, Fried argues that this implies an individual's tax burden should be limited to cover the price of these goods. This is commonly referred to as "benefits taxation". She then makes an intriguing case for a strongly progressive tax rate for benefits taxation and one that will even permit redistribution for the purposes of social welfare. She ends with a more fundamental issue: "What counts as a public good (benefit) for which the state can rightly charge?" She believes it includes much of our built and social and physical environment: from norms of civility to architecture, good teachers, and well-functioning hospitals. Her version of libertarianism seems to have the capacity to accommodate this position.

Stuart White's "Moral Objections to Inheritance Tax" returns us to a more standard way that philosophers use to look at the world. His task is to carefully dismantle four major moral arguments against inheritance tax: the double tax objection, the equity objection, the virtue objection, and the wrong problem objection. The first says that inheritance tax is unfair because tax has already been paid on the assets; the second says that inheritance tax is unfair because it leads to unequal tax burdens on people who have equal wealth but choose to use that wealth differently; the third says that inheritance tax penalizes virtuous behavior; and the forth says that inheritance tax does not solve the problem it sets out to address (inequality), because it is fixed on inequality of possessions whereas the real issue is inequality of consumption. Depending on your moral priorities, you will or will not agree that White achieves his objectives. It really depends on whether you gauge these objections to be the "strongest possible". Also, defeating four objections does not imply that that the path is clear to impose an inheritance tax. The jury is out on this one, too.

"The Politics of Land Value Taxation", by Iain McLean, ends with a very abrupt paragraph: "Property is not theft. But it could be taxed in a more rational way than at present. In the long run, everybody would gain" (p. 201). This says it all. McLean argues that a land value tax "has both theoretical and practical merit". He examines both the intellectual and political history of land tax drawing mostly on examples from the United Kingdom. A key part of the essay is the section on the practical politics of a land tax. Having discussed the merits of a Land Value Tax, McLean is aware that it is also unpalatable for many, so he asks "How then could a brave government make Land Value Tax for housing acceptable to the median voter?" Here, McLean engages in a form of political engineering with the aid of Public Choice Theory. There isn't space here to set out his four suggestions, but they are eye-opening -- particularly his case of the "Devon widow", which is the situation of an asset rich/cash poor household. His solution is to defer the tax liability until after death or at the time the property is sold.

In "The State and Tax Competition: A Normative Perspective", Peter Dietsch moves the discussion to an area of tax justice that has been largely overlooked by political philosophers: the strategic interaction effects of tax regimes in a global economy. He targets the effect on social justice when states compete with each other for mobile capital through low tax rates and favorable regulation. Although this competition is clearly a way for governments to stimulate economic growth and create jobs, it simultaneously interferes with, and even undermines, the fiscal independence of states and hence their ability to fund public services and meet local demands of social justice. That is, there are spill-over effects of fiscal policy. The underlying question is whether there are any moral limits to the migration of the tax base between countries. "The crucial question", asks Dietsch, "becomes which portion of fiscal interdependence should be considered benign from a normative viewpoint, and which portion should be condemned as problematic" (p. 214). He answers this by introducing two normative principles: the autonomy prerogative and the global justice constraint . That is, for fiscal policy to be just, it must be able to implement autonomous political choices and promote distributive justice globally. Thus, jurisdictional rules on tax competition must be designed so as to respect these twin principles.

In the final essay, "Global Taxation and Accounting Arrangements: Some Normatively Desirable and Feasible Policy Recommendations", Gillian Brock and Rachel McMaster delve into the nitty gritty of accounting practices and how they contribute to what is cogently termed as tax escape -- tax avoidance and evasion. In particular, they examine the practice of "transfer pricing" used for sales and purchases within a company or group of companies. The practice permits profits to be disguised and taxes avoided. Brock and McMaster also provide a review of the characteristics, scope, and effects of tax havens. They offer insight into means for regulating tax escape, including such global taxes as air ticket taxes and currency transaction taxes. At a very practical level they set out four normative and four feasibility criteria for collecting global taxes. They show that air ticket and currency transactions taxes meet these criteria and to their mind serve as an example of how to implement Thomas Pogge's Global Resource Dividend. The book thus ends exactly with the point made at the outset by Hamlin: we need to open up the black box of taxation.

This is a friendly review from someone who works at the interface of philosophy and economics. Does the collection come up short in any way? That would require dissecting each essay –which I haven't taken to be my remit. My remit is the collection as a whole, which I find to be an excellent entry into the world of taxation and an exercise in that growing research area we call PPE. One of my own tests for how good a book is, is whether I would include it as essential reading for an undergraduate course. Yes, I certainly would.

The book's overall message is that the Libertarian, Rawlsian and standard welfare economics views of taxation are much richer, complex, and flexible than generally thought. Regardless of the rhetorical appeal, it really would be best were we to refrain from using the Nozickean forced labour argument, to refrain from simply stating that a tax system is just if it is part of the "basic structure", and to refrain from setting optimal tax theory against fairness. And even if we agree that a tax is justifiable for whatever purpose, it requires careful and detailed elaboration of the tax system itself.

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Types of Taxes in India

Last updated on March 11, 2024 by ClearIAS Team

The Central Government and the State Governments each levy their different types of taxes in India under India’s system of taxation. Local governments like the Municipality and Local Governments also impose a few small levies.

Money is needed to handle a state’s business and administer its government. Therefore, the government levies taxes in many different ways on the revenues of people and businesses.

Let’s see what are the different types of taxes in India.

Table of Contents

What is Tax?

The cost of some transactions, goods, and services is increased by types of tax in India, which the Indian government imposes on corporate profits and worker income in addition to other costs.

To raise money for commercial endeavors that would boost the nation’s economy and elevate citizens’ quality of living, the government levies taxes on its constituents.

The Indian Constitution, which gives the State and Central governments equal authority to impose different types of taxes in India, is the source of our nation’s right to taxation. Every tax levied within the nation must be supported by a law established by the State Legislature or the Parliament.

Different types of taxes in India are broadly classified into two types:

• Direct Taxes
• Indirect Taxes

A direct tax is imposed directly upon the taxpayer and is paid by individuals who are subject to it by the government. Levying and collecting direct taxes as well as developing other direct tax regulations fall within the purview of the Central Board of Direct Taxes.

A taxpayer may be required to pay a direct tax to the government for several different reasons, including real estate taxes, personal property taxes, income taxes, asset taxes, gift taxes, capital gains taxes, and others. One of the government’s two primary sources of income is direct taxation.

The other is indirect tax. Direct taxes generate around half of the government’s revenue each fiscal year. The government sets fiscal year-specific goals for direct tax collection to raise income.

Examples of Direct Tax

Examples of direct tax include Income tax, corporation tax, minimum alternate tax, capital gain tax, securities transaction tax, commodities transaction tax, alternate minimum tax, estate duty, wealth tax, gift tax, and fringe benefit tax.

• Income tax is levied on individuals, Hindu undivided families, unregistered firms, and other groups of people.
• In India, the income tax system is progressive.
• All forms of income are aggregated and taxed by the individual’s income tax brackets.
• Depending on the amount of net income, different rates of income tax are applied. For instance, if net taxable income is between Rs. 5 and 7.5 lakhs, an income tax of 10% is levied.
• There is a 10% surcharge on income tax in cases when the total income is greater than Rs 50 lakh but not greater than Rs 1 crore.

Note: Agricultural income is not subject to tax.

Corporation Tax

• It is a tax levied against the earnings of businesses and corporations. Additionally known as corporate tax .
• A company must pay a separate tax from its owner’s income tax since it is recognized as a separate entity for tax purposes.
• Both public and private companies that are registered in India under the Companies Act 1956 are required to pay corporation tax.
• All domestic enterprises must pay corporation tax at a rate of 22% as of January 2022.

Minimum Alternate Tax

• By utilizing the various incentives and exemptions made available by the Income-tax Act, businesses with high profits and sizable dividends to shareholders who were not paying corporate tax to the government were required to pay a set percentage of book profit as minimum alternate tax, according to the concept of Minimum Alternate Tax (MAT).
• As a result, the government levies an advance tax on these companies called the Minimum Alternate Tax, or MAT. Businesses must therefore pay at least a specified amount of tax.
• According to the Income Tax Act, a portion of a company’s booked earnings is automatically deemed taxable income, and tax is required if the company’s taxable income is less than a specific percentage of those profits.
• The rate of MAT is 15% as of January 2022.

Capital Gain Tax

• Any profit or gain realized from the sale of a capital asset is referred to as a capital gain.
• Taxation is imposed on capital sale profits.
• Capital assets include things like land, structures, homes, jewelry, patents, and copyrights.
• A capital asset held for less than 36 months is referred to as a short-term capital asset.
• Long-term capital asset – An asset that has been held for longer than 36 months is referred to be a long-term capital asset.
• The 36-month minimum for immovable property (land, buildings, and houses) has been lowered to 24 months as of FY 2017–18.
• For instance, if you sell a house after owning it for 24 months, any income you receive if you do so after March 31, 2017, will be regarded as a long-term capital gain.
• Transportable items are free from this adjustment, though, including jewelry and mutual funds that invest in debt.
• They will be categorized as long-term capital assets if held for some time greater than 36 months.
• Depending on the amount of income received, different capital gains taxes are applied to short- and long-term profits.

Securities Transaction Tax

• Gains on securities including shares, options, and futures traded on the domestic stock exchange are subject to a tax known as the securities transaction tax.
• It is a direct tax that the federal government imposes and collects.
• During his tenure as finance minister, P. Chidambaram introduced the Securities Transaction Tax (STT) first in 2004.

Commodities Transaction Tax

• In India, the exchange-traded non-agricultural commodity derivatives buyers and sellers are both subject to the commodity transaction tax.
• Based on the size of the contract, it is determined.
• Commodities covered by CTT include non-farm items including metals (gold, silver, and copper) and energy products (crude oil and natural gas).

Alternate Minimum Tax

• Alternate Minimum Tax (AMT) is to limited liability partnerships what Minimum Alternate Tax (MAT) is to corporations.
• Other commercial entities, such as sole proprietorships, partnerships, and associations of people, are exempt from this tax.

Estate Duty

• It was initially presented in 1953. When a person passes away, it is imposed on all of their possessions.
• The entire estate of the decedent is regarded as his wealth and is taxable.
• The tax hasn’t been in place since 1985.
• It was initially shown in 1957.
• Individuals, combined Hindu families, and companies with a surplus of net value were subject to it.
• Wef 2015, the tax was abolished.
• It was initially released in 1958.
• The only donations exempt from the gift tax were those made by public and private organizations that support charitable institutions.
• The tax hasn’t been collected since 1998.

Fringe Benefits Tax

• To reduce the profit on booked entries, many businesses provide their staff with various bonuses and maintain them below their input cost.
• As a result, there is less profit, which lowers government taxation.
• The Fringe Benefits Tax (FBT), which is effectively a tax that an employer must pay instead of the benefits granted to his or her employees, was enacted by the government as a response to this.
• It was an effort to tax all perks that were being used to avoid paying taxes.
• The fringe benefits tax was eliminated in India’s Union budget for 2009.

Advantages of Direct Tax

• Economic Balance: To achieve economic and social balance, the government establishes tax brackets based on an individual’s income and age. The tax rate is determined by the nation’s economic situation. People are given exceptions to balance out economic inequalities.
• Ensures equality: For the government to help the poor and vulnerable in society, higher taxes must be paid by people and enterprises with higher profits. This keeps the economy in balance.
• Gives Certainty: The direct tax gives both the government and the taxpayers confidence because both parties are aware of the exact amount of tax that must be paid and collected.
• Addresses inflation issues: In times of high inflation, the government boosts taxes to reduce demand for goods and services, which causes inflation to decline.
• Makes Government Accountable: People are aware that paying taxes is necessary. As a result, he or she is involved in the government’s use of taxes and is aware of his or her rights. By doing this, accountability for the government is ensured.

Disadvantages of Direct Tax

• Can be easily evaded: Not everybody wants to pay taxes. Some people are willing to file a false tax return to avoid paying taxes. These people can simply conceal their income since they are not subject to state law.
• Tax slabs are arbitrary: If taxes are progressive, they are set at the Finance Minister’s discretion. If it is proportional, it significantly burdens the underprivileged.
• Obstructs growth: High taxes discourage people from investing and saving, which hurts the nation’s economy. It harms enterprises and industries by impeding their expansion.
• Inconvenience: A direct tax’s major drawback is that it hurts the taxpayer. He senses that his hard-earned money has been stolen away when a large sum is taken from his pocket. Direct tax payment is therefore rather inconvenient.

Indirect Tax

• Indirect taxes are levied against the party who will ultimately bear the financial burden of the tax through the use of an intermediary.
• The taxpayer has the option to transfer it to another party.
• The middleman creates a tax return and sends the government’s tax revenue with it.
• In this regard, an indirect tax is distinct from a direct tax, which is paid by the government directly to the people (whether legal or natural) who are subject to it.
• Instead of using a person’s income, indirect taxes are calculated using their expenses.
• Suppliers of products and services are subject to indirect taxes, but consumers are ultimately responsible for paying them.

Examples of Indirect Tax

Examples of Indirect tax include customs duty, sales tax, excise duty, service tax, value-added tax, and dividend distribution tax.

Customs Duty

• Customs duties are imposed as a tariff or fee when goods are transported across international borders.
• Its objective is to protect the nation’s economy.
• Under customs regulations, several different types of duties are levied, including Basic Duty, Countervailing Duty, Protective Duty, Anti-Dumping Duty, and Export Duty.
• Import taxes are used to control business as well as to bring in money for the government.
• Ad valorem calculations are used in India to determine import taxes.
• A national indirect tax known as GST ( Goods and Services Tax ) is levied on the production, sale, and consumption of goods and services.
• All indirect taxes imposed on products and services by the federal and state governments have been replaced by it.
• A sales tax in India is a sort of tax that the government imposes on the sale or purchase of a certain good inside the nation.
• Both the federal government and the state governments impose a sales tax.
• IGST has since taken its place.

Excise Duty

• Excise duty is a commodities tax in the true sense of the word because it is levied on the production of goods rather than their sale in India.
• The federal government levies a clear excise duty on all goods except alcoholic beverages and illegal drugs.
• CGST has since taken its position.

Service Tax

• All rendered services in India are subject to a service tax.
• A service tax was introduced in 1994–1995 on three services: stockbroking, general insurance, and telephone services.
• Since then, the service net has been wider as new services are added every year. We now have an exclusion criterion known as a “negative list,” where certain services are not included in the tax net.
• Before being replaced by the Goods and Services Tax, the service tax rate in India was 15%.

Value Added Tax

• Because of the way it is designed, the VAT does away with distortions.
• As a result, VAT has been imposed in all of India’s states and union territories (except UTs of Andaman Nicobar and Lakshadweep).
• The state determines the amount of the tax, which is levied on a range of goods sold in the state.
• State Sales Tax had been replaced with State VAT, which was in effect until July 1, 2017.
• SGST has since taken its position.

Dividend Distribution Tax

• A dividend is a payment made from a company’s profits in a certain year to its stockholders. Dividends are income in the eyes of the shareholders, hence they ought should ideally be taxable.
• The amount of dividends given to shareholders is the basis for the tax that the Indian government imposes on Indian firms.
• When DDT was originally made available in 1997, it was governed under Section 115 O of the Income Tax Act.
• In Budget 2020, the Finance Minister got rid of the Dividend Distribution Tax.
• Now that corporations are no longer required to pay dividend taxes, individuals must.

Advantages of Indirect Tax

• Everyone can contribute: Indirect taxes are levied on everyone who purchases a product, unlike income taxes, which are paid by some income groups but not by others. Tourists and persons from lower socioeconomic backgrounds who are not employed in India must pay it because they will buy items in some capacity.
• Indirect Taxes are convenient: They are quite practical when it comes to collecting indirect taxes. Customers do not feel forced to spend such small amounts even though taxes may be extremely cheap. Additionally, they are an affordable fee that is included in the cost of the goods sold.
• They are unavoidable: Indirect taxes cannot be avoided because they are part of the product’s price. Anyone who buys the good will therefore be liable for the tax.
• They cover a wide range: The consumer will notice and suffer greatly if a service or product is heavily taxed on only one characteristic. Because they are applied to more products and are paid in smaller sums in this situation, indirect taxes may be favorable.

Disadvantages of Indirect Taxes

• Indirect taxes have the potential to be regressive: It can be argued that it is unfair to the poor because everyone pays the same indirect tax. Indirect tax is imposed on all purchases, and while the wealthy may be able to pay it, the poor will also be responsible for it. Indirect taxes may therefore be viewed as regressive.
• They are inflationary in effect: The precise percentage of tax that applies to every item that a seller sells might not always be possible to calculate and collect. To ensure that every customer pays the indirect tax, they purposely charge more than the tax amount. But over time, this drives up the cost of commodities.
• They do not raise civic consciousness: Because they are buried in the price, millions of people who pay indirect taxes aren’t even aware that they are doing it, which lowers civic consciousness.

Also read: Tax buoyancy

Difference Between Direct and Indirect Taxes

Cess and surcharge.

The Union Government imposes cess and surcharges as taxes to generate revenue for administrative costs. Even though cess and surcharge increase the government’s revenue, they differ in many ways.

• In its most basic form, a cess is a levy on tax.
• It is crucial to keep in mind that a cess may only be used for the intended purpose.
• For instance, the Indian government only utilizes money collected from an education cess for education.
• Furthermore, all taxpayers must pay this tax.
• To the Consolidated Fund of India, cess taxes are paid.
• In general, cess is anticipated to be levied up until the government has a strong enough reason to do so and to disappear after that reason has been achieved.
• Since a cess is imposed in addition to the present tax, it differs from other taxes like excise duty and income tax (tax on tax).
• For instance, adding a 5% education tax to a 20% income tax will increase the entire tax to 21%. (20% base tax + an additional 5% cess).
• The main cesses that are currently in effect are those for education, roads, infrastructure, clean energy, Krishi Kalyan, and Swachh Bharat .
• Individuals with net taxable salaries of more than Rs 1 crore are subject to a 10% surcharge on their tax obligations.
• If net income is between Rs 1 crore and Rs 10 crore, domestic corporations must pay a surcharge of 5%. 10% of the net revenue over Rs 10 crore is subject to a surcharge.
• If the net income is between Rs 1 crore and Rs 10 crore, a 2% surcharge is imposed on international firms.
• The surcharge is raised to 5% if the net income surpasses Rs 10 cr. If the net income surpasses Rs 1 crore and Rs 10 crore, both domestic and foreign enterprises receive a margin of relief.
• A tax surcharge on income is a significant source of funding for the state.
• The Union Government may use this money for any purpose it sees fit.
• It’s important to note that just the tax that must be paid, not the entire income, is covered.
• The Consolidated Fund of India receives this payment, which may be used for any purpose.

A 10 percent surcharge on a 30 percent income tax rate, for example, brings the tax burden to 33 percent.

Benefits of Taxes

Different types of taxes in India are intended to give the government money for expenditure while preventing inflation. Various types of income, including wages, business profits, rental income from real estate, and others, are subject to taxation.

Wealth taxes, sales taxes, property taxes, payroll taxes, value-added taxes, service taxes, and so on are additional taxes.

Types of taxes in India are used by the government for several things, including:

• Public sector investment for infrastructure
• projects for welfare and development
• Defense budget
• Using data from scientific studies, public insurance
• Government and state workers get a range of pay.
• the running of the public transportation network of the government
• Unemployment benefits
• pension schemes
• the application of the law

Examples of public utilities include systems for managing garbage, water, electricity, and public health.

Different types of taxes in India therefore have both benefits and drawbacks, but there is no denying that they are necessary to raise money. While the wealthy can pay direct taxes, the poor have the chance to make a small contribution through indirect taxes.

There is a lot of potential to change things by controlling these tax systems. These factors make a nation’s taxation system crucial to its economy.

Read:  Tax buoyancy

Article written by: Remya

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Different Types of Volcanoes

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Published: Mar 20, 2024

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Shield volcanoes, stratovolcanoes, cinder cones, submarine volcanoes.

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Types of Income the IRS Doesn't Tax

It may feel like the IRS taxes most of your hard-earned money, but some types of income are nontaxable.

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A frustrating thing about working hard to earn money is knowing the IRS will tax a portion of your earnings. Federal taxable income generally includes wages, tips, royalties, commissions, and for some, up to 85% of Social Security benefits . And that's not an exhaustive list.

However, several categories of income are not taxable in the eyes of the IRS. Generally, whether income is taxable depends on various rules, requirements, and regulations or whether you're talking about federal or state taxes.

To help sort through it, here is a list of some common types of nontaxable income. Of course, it's good to consult a trusted tax professional or financial adviser if you are uncertain about your tax burden and how to minimize it. 

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Nontaxable income examples

Note: The following are examples of nontaxable income. (This list is not all-inclusive.) In some cases, you may have to report nontaxable income on your federal income tax return even though it isn't subject to tax.

For more information on what the IRS considers taxable, see IRS Publication 525 .

Financial gifts

Financial gifts are a well-known category of non-taxable income. That's due in part to the generous annual federal gift tax limit . For example, for the 2023 tax year, you could give up to $17,000 to friends, family, or anyone else and not be taxed. ( The recipients won't be taxed on that amount either .)

The gift tax limit for gifts given in 2024 has risen to $18,000. It is one of many IRS provisions that is adjusted annually for inflation . So you can give up to that amount to as many people as you want without incurring tax liability. ( For married couples, the 2024 limit is $18,000 each ). 

Note: Staying under these limits per recipient exempts you from filing a gift tax return for the year. But exceeding the limit doesn't necessarily result in owing tax, thanks to a high lifetime estate and gift tax exemption .

• Charitable gifts are generally non-taxable. Be sure to get receipts and ensure the charities you give to are legitimate.
• Unfortunately, gifts given by employers to employees that are akin to cash, i.e., gift cards, are usually considered taxable by the IRS.

However, some other employer-provided benefits and fringe benefits are not taxable. Examples include employer-provided health insurance, up to $50,000 of group term life insurance provided by your employer, and employer contributions to your health savings account (HSA) if you have one.

Generally, distributions from your HSA for qualified medical expenses are tax-free, while HSA distributions used for other purposes are subject to an additional 20% tax penalty. 

If you are 65 or older, however, you can withdraw HSA funds for non-medical expenses without paying the additional tax penalty. But ordinary income tax rates still apply to distributions for other than qualified medical expenses.

Inheritances

The IRS doesn't consider inheritances to be taxable income. That includes inheritances of cash, property, etc. 

Remember, though, that if the money you receive from an inheritance subsequently generates income, such as the interest from an interest-bearing account, those earnings may be taxable.

• Additionally, although there is no federal inheritance tax, some states tax inheritances. 
• As of 2023, these states are Iowa, Kentucky , Maryland , Nebraska , New Jersey , and Pennsylvania . ( Iowa plans to fully phase out its inheritance tax by 2025.) 
• However, few taxpayers overall pay state inheritance taxes due to varying exemptions.

Note : Not to be confused with inheritance tax (which is levied on the heirs of the deceased), the limit for the federal estate tax (levied on the estate) is quite high (i.e., $12.92 million for 2023 and $13.61 million for 2024), so most taxpayers can avoid the tax. Meanwhile, as of 2023, twelve states and the District of Columbia levy an estate tax.

Life insurance proceeds

Life insurance policy proceeds received by a beneficiary after the policyholder's death are generally tax-free. However, interest earned on the proceeds may be taxable, and tax rules can get complex if the policyholder surrenders the policy for cash.  Also, if you take a life insurance policy loan, the loan generally isn't taxable as long as the policy remains in force and the loan amount doesn't exceed the amount of policy premiums paid.

The IRS has an online tool that can help determine whether life insurance policy proceeds you've received are taxable.

Are annuities taxable?

Different types of annuities are subject to different tax treatments. Generally, you pay taxes on annuities only once you start receiving payments or withdrawing funds. For example, earnings from non-qualified annuities are taxed upon withdrawal, while the contributions from after-tax dollars are not taxed. 

Annuities are complex, so it's a good idea to seek advice from a trusted professional if you need clarification on your tax exposure.

Long-term care insurance income

Payments received from long-term care insurance policies are usually not subject to tax. So, if you receive reimbursements for medical expenses due to injury or illness under an accident and health insurance contract, these payments are generally considered nontaxable by the IRS.

Disability benefits

Disability and worker's compensation payments are generally nontaxable. 

• Supplemental Security Income payments are also tax-exempt. 
• Disability compensation or pension payments from the Department of Veterans Affairs to U.S. military Veterans are tax-free as well.

Municipal bond interest

Government-issued bond interest is mostly tax-exempt, but some muni interest may be taxable at federal and state levels. For example, U.S. Treasury securities are taxable at the federal level. Corporate bond interest is taxable at both the federal and state levels.

Some capital gains and losses

If your capital losses exceed your capital gains , you can claim up to $3,000 excess loss as a deduction from your income. The deduction amount is the lesser of $3,000 ($1,500 if married filing separately) or the total net loss on Schedule D of your Form 1040. The IRS allows you to carry the loss forward to later years under specific rules.

• Also, if you meet certain criteria, you can avoid capital gains taxes on the first $250,000 (single filers) of your profits on the sale of your primary residence and up to $500,000 if married and filing jointly. 
• For more information, see Capital Gains Tax Exclusion for Homeowners: What to Know .

Roth account income

Qualified distributions (i.e., from a Roth account at least five years old since you first contributed and when you are 59½ years or older) are tax-exempt. The IRS now allows you to make regular contributions to your Roth IRA at any age. Plus, you can leave any amount in your Roth IRA for as long as you live.

Alimony and child support

If you receive alimony or maintenance payments as part of a separation or divorce agreement made on or after January 1, 2019, those payments are not taxable. On the other hand, if you are paying alimony under such an agreement, you cannot deduct the payments from your income tax. 

• However, state tax treatment of alimony may differ. 
• Child support payments are not subject to tax.

Earned income in states with no income tax

If you live in one of the nine states without personal income tax  — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — you won't be taxed on your earned income at the state level. 

• However, Washington State has introduced a capital gains tax , and 
• New Hampshire is phasing out its interest and dividend income tax.

Additionally, while some portion of your Social Security payments may be subject to federal tax, most states don't tax Social Security income. For more information, see Kiplinger's list of states that tax Social Security in 2024 .

Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement.  Subscribe for retirement advice  that’s right on the money.

This article has been updated to clarify the lifetime estate and gift tax exemption and the tax exemption for life insurance policy loans.

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As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist. 

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What Is Form 1040: U.S. Individual Tax Return?

Form 1040 is the standard Internal Revenue Service (IRS) form that individual taxpayers use to file their annual income tax returns . The form contains sections that require taxpayers to disclose their taxable income for the year to determine whether additional taxes are owed or whether the filer will receive a tax refund.

Key Takeaways

• Form 1040 is what individual taxpayers use to file their taxes with the IRS.
• The form determines if additional taxes are due or if the filer will receive a tax refund.
• Taxpayers must include personal information on Form 1040, such as name, address, Social Security number, and the number of dependents.
• A filer also needs to report wages, salary, taxable interest, capital gains, pensions, Social Security benefits, and other types of income.
• Taxpayers may need to file supplemental tax 1040 forms depending on their situation.

Who Can File Form 1040: U.S. Individual Tax Return?

Form 1040 needs to be filed with the IRS by April 15 in most years. Everyone who earns income over a certain threshold must file an income tax return with the IRS. Keep in mind that businesses have different forms to report their profits.

If a United States citizen wants to or needs to file a Federal income tax return, they need to file Form 1040 or a variation of Form 1040 mentioned above. There are three general conditions to consider regarding whether an individual needs to file.

First, the IRS requires individuals with certain levels of gross income to file taxes. This threshold varies based on the individual's filing status and age. The table below lists the income limits for individuals under 65 years old. Keep in mind that older taxpayers tend to have higher thresholds, and the threshold changes if neither, one, or both individuals in a marriage are 65 or older.

Children and dependents may not be required to file if they can be claimed as a dependent. In 2023, if the dependent's unearned income is greater than $1,250 ($1,300 in 2024) but under $12,500 ($13,000 in 2024), earned income is greater than $13,850 ($14,600 in 2024), or gross income meets certain thresholds, the dependent must file their own Form 1040. These rules are slightly different for single dependents as opposed to dependents who are married.

Finally, some specific situations require an individual to file Form 1040. Regardless of their income or dependency status, some of those situations include but are not limited to:

• You owe additional special taxes such as alternative minimum tax
• You receive HSA or other health account distributions
• You had net earnings from self-employment of at least $400
• You met the income threshold limits for wages earned from a church

How to File Form 1040: U.S. Individual Tax Return

Form 1040 is available on the IRS website and has two pages that must be filled out. Form 1040 can be mailed in or e-filed. Tax filers are asked for their filing status along with their personal information, such as their name, address, Social Security number (some information on one's spouse may also be needed), and the number of dependents.

The form also asks whether the taxpayer wishes to contribute $3 to presidential campaign funds.

The 1040 income section asks the filer to report wages, salary, taxable interest, capital gains, pensions, Social Security benefits, and other types of income. The new tax legislation eliminated many deductions , including unreimbursed employee expenses, tax-preparation fees, and the cost of moving for a job (except for military on active duty).

The form uses what the IRS terms a building block approach and allows taxpayers to add only the schedules they need to their tax returns. Some individuals may need to file one or more of six supplemental schedules with their 1040 in addition to long-standing schedules for items like business income or loss.

This depends on whether they're claiming tax credits or owe additional taxes. Many individual taxpayers, however, only need to file a 1040 and no schedules .

Taxpayers in certain situations may need to file a different variant of the 1040 form instead of the standard version. Below are the options.

Form 1040-NR

Certain nonresident aliens or their representatives need to file this form, including:

• Those who are engaged in trade or business in the United States
• Representatives of a deceased person who would have had to file a Form 1040-NR
• Those who represent an estate or trust that had to file a 1040-NR

The IRS also produces the 1040-SS and 1040-PR. The 1040-SS is for residents of American Samoa, the CNMI, Guam, Puerto Rico, or the U.S. Virgin Islands who have net self-employment income and do not have to file Form 1040 with the U.S. Form 1040-PR is the Spanish-language equivalent of Form 1040-SS.

Form 1040-ES

This form is used to determine and pay estimated quarterly taxes. The estimated tax applies to income that isn’t subject to withholding, which includes earnings from self-employment, interest, dividends, and rents. This may also include unemployment compensation, pension income, and the taxable portion of Social Security benefits.

Form 1040-V

This is a statement accompanying a taxpayer's payment for any balance on the "Amount you owe" line of the 1040 or 1040-NR.

Form 1040-X

If a filer makes a mistake or forgets to include information on any 1040 form, Form 1040-X is used for making changes to previously filed 1040s.

Form 1040-SR

The IRS introduced a new 1040 form in 2019, Form 1040-SR , which is designed for taxpayers over the age of 65. Changes include a larger font, no shading (shaded sections can be hard to read), and a standard deduction chart that includes the extra standard deduction for taxpayers over 65. Taxpayers in this age bracket who fill out their taxes online won't see a difference, but those who do it on paper will.

Standard Deductions on Form 1040

The 1040 income section asks taxpayers for their filing status. This filing determines the taxpayer's standard deduction . The table below highlights the deductions for the 2023 and 2024 tax years. Keep in mind that you file 2023 taxes in 2024 and 2024 taxes in 2025.

An additional deduction may be taken by those who are age 65 or older or blind. Just like the standard deduction, these figures are adjusted annually for inflation.

• Aged or Blind: $1,500 in 2023 increased to $1,850 if the individual is also unmarried and not a surviving spouse. These amounts increase to $1,550 and $1,950, respectively, in 2024.

The standard deduction cannot be taken by an estate or trust, an individual who is filing a short return due to a change in accounting periods, an individual who was a nonresident alien part of the tax year, or a married individual whose spouse is filing separately and itemizing.

As noted above, Form 1040 uses a variety of additional schedules to help taxpayers report their tax obligations. The following schedules are used to compile financial information away from Form 1040 to later use Form 1040 as the primary source of reporting.

Schedule 1 is used to report additional income or adjustments to income. This may include alimony , disposition proceeds from the sale of a business, educator expenses, health savings account (HSA) contributions, or unemployment compensation.

It's important to note that:

• Other Income from Schedule 1: This is reported on Line 8 of Form 1040
• Adjustments to Income from Schedule 1: This is reported on Line 10 of Form 1040

Schedule 2 is used to report additional taxes. One part of Schedule 2 reports alternative minimum tax and repayment of excess premium tax credits for insurance bought through health insurance marketplaces .

Another part of Schedule 2 is used to report self-employment taxes, Medicare taxes, taxes on individual retirement accounts (IRAs) , household employment taxes, and other taxes. These two parts from Schedule 2 are reported on Line 17 and Line 23 on Form 1040.

Schedule 3 is used to report additional tax credits and payments. These credits include dependent care expense credits, residential energy credits , excess social security taxes previously remitted, and excess Federal income taxes previously remitted.

Nonrefundable credits from Schedule 3 are reported on Line 20 of Form 1040, while refundable credits from Schedule 3 are reported on Line 31 of Form 1040.

Schedule A (Itemized Deductions)

Schedule A is used to figure out a taxpayer's itemized deduction . A taxpayer's federal income liability is most often minimized when choosing the larger of their standard deduction or itemized deduction.

The itemized deduction calculation includes medical expenses, dental expenses, certain taxes, certain interest assessments, theft losses, and other expenses. Any input from Schedule A is entered into Line 12a on Form 1040.

Schedule B (Interest and Ordinary Dividends)

Schedule B is used for taxpayers who received greater than $1,500 of taxable interest or ordinary dividends. It is also used to report interest from a seller-financed mortgage , accrued interest from a bond, interest or ordinary dividends as a nominee, and other similar types of interest. Input from Schedule B is entered into Line 2b and Line 3b on Form 1040.

Schedule C (Net Profit From Business)

Schedule C is used to report business income or loss. An activity qualifies as a business if the taxpayer is engaged in the activity for the primary purpose of producing income or profit. The activity is also considered a business as long as the taxpayer is involved in the activity with regularity and continuity. Profit from Schedule C is entered on Schedule 1, Line 3. It is also used on Schedule SE.

If your business was a sole proprietorship or qualified joint venture and you meet other criteria, you can report your business operations using Schedule C.

Schedule D (Capital Gains and Losses)

Schedule D is used to report taxable income from the sale or exchange of a capital asset. This gain may have arisen from an exchange or an involuntary conversion . Schedule D is also used to report capital gain distributions not otherwise reported on Form 1040 as well as nonbusiness bad debts. Input from Schedule D is entered on Form 1040, Line 7.

Schedule E (Supplemental Income and Loss)

Schedule E is used to report various types of additional income or losses. This supplemental financial activity ranges from real estate rental income, royalties , partnerships, estates, trusts, and residual interests in real estate mortgage investment conduits. Supplemental income figures from Schedule E are reported on Form 1040 in the "Income" section.

Schedule EIC (Earned Income Credit)

Schedule EIC is quite different from other tax schedules. The earned income credit is calculated separately from this schedule. However, Schedule EIC is used to substantiate the qualification of your qualifying children by remitting to the IRS your child's name, Social Security number , birth year, relationship to you, and residency status. Information from Schedule EIC is not directly input into Form 1040.

The Earned Income Credit is maximized if a taxpayer has at least three children. Therefore, Schedule EIC only asks for information on three children; additional forms for additional children beyond three are not required.

Other Schedules

Other notable supplementary schedules to Form 1040 include:

• Schedule F is used to report profits or losses from farming operations
• Schedule H is used to report household employment taxes if you paid cash wages to household employees and those wages were subject to various Federal taxes
• Schedule J is used to report farming or fishing trade income by averaging taxable income over the previous three years
• Schedule R is used to report a credit for the elderly or disabled
• Schedule SE is used to report the tax due on net earnings from self-employment
• Schedule 8812 is used to report potentially refundable credits for qualifying children (or other dependents)

What Is Form 1040 Used for?

Form 1040 is the primary tax form used by U.S. taxpayers to file their annual income tax returns. Taxpayers input their personal information and tax information onto the form, then submit the form to the IRS for review.

Is Form 1040 the Same As a W-2?

Form 1040 is different from a W-2. A W-2 is a wage and tax statement an employee receives from a company they worked for during the tax year. The information listed on the W-2 is used to fill out Form 1040.

Where Can I Find Form 1040?

Form 1040 is not a tax statement or form that gets distributed to taxpayers. Unlike a W-2 or 1099 statement that is mailed by an employer or party you've contracted with, Form 1040 is available for download on the IRS website. In addition, free IRS filing platforms such as Free File Fillable Forms will provide digital copies. Last, some public courthouses or Federal buildings in your community may offer paper copies available for pickup.

What Is the Difference Between a 1040 and a 1099?

Form 1040 and Form 1099 are different components of an individual's tax return. There are many different types of Form 1099, but Form 1099 is most commonly given to independent contractors to remit tax information relating to payments they received during the tax year. This information is used to complete Form 1040, as the financial records listed on Form 1099 are input into Form 1040.

Form 1040 is the central part of tax filing for United States citizens. It is the tax form that all taxpayer financial statements eventually feed into and support tax schedules branch out of. Regardless of an individual's filing status or income, taxpayers who file taxes will complete some version of Form 1040.

Internal Revenue Service. " 1040 (and 1040-SR) Instructions ," Pages 6, 8-9.

Internal Revenue Service. " Topic No. 407, Business Income ."

Internal Revenue Service. " Publication 501, Dependents, Standard Deduction, and Filing Information ."

Internal Revenue Service. " IRS Provides Tax Inflation Adjustments for Tax Year 2023 ."

Internal Revenue Service. " IRS Provides Tax Inflation Adjustments for Tax Year 2024 ."

Internal Revenue Service. " Rev. Proc. 2023-34 ," Pages 7, 12.

Internal Revenue Service. " Rev. Proc. 2022-38 ," Pages 8, 13.

Internal Revenue Service. " Dependents ."

Internal Revenue Service. " 1040 (and 1040-SR) Instructions ," Page 11.

Internal Revenue Service. " Form 1040 ."

Internal Revenue Service. " Moving Expenses to and from the United States ."

Internal Revenue Service. " Tax Reform Affects if and How Taxpayers Itemize Their Deductions ."

National Archives, Federal Register. " Agency Information Collection Activities; Submission for OMB Review; Comment Request; U.S. Individual Income Tax Return ."

Internal Revenue Service. " About Form 1040-NR, U.S. Nonresident Alien Income Tax Return ."

Internal Revenue Service. " Individuals Living or Working in U.S. Territories/Possessions ."

Internal Revenue Service. " About Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico) ."

Internal Revenue Service. " About Form 1040-ES, Estimated Tax for Individuals ."

Internal Revenue Service. " Form 1040-V ."

Internal Revenue Service. " Instructions for Form 1040-X ."

Internal Revenue Service. " About Form 1040-SR, U.S. Tax Return for Seniors ."

Internal Revenue Service. " Rev. Proc. 2023-34 ," Page 12.

Internal Revenue Service. " Rev. Proc. 2022-38 ," Page 14.

Internal Revenue Service. " Topic No. 551 Standard Deduction ."

Internal Revenue Service. " Schedule 1 (Form 1040) ."

Internal Revenue Service. " Schedule 2 (Form 1040) ."

Internal Revenue Service. " Schedule 3 (Form 1040) ."

Internal Revenue Service. " 2022 Instructions for Schedule A ."

Internal Revenue Service. " About Schedule B (Form 1040), Interest and Ordinary Dividends ."

Internal Revenue Service. " About Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) ."

Internal Revenue Service. " About Schedule D (Form 1040), Capital Gains and Losses ."

Internal Revenue Service. " About Schedule E (Form 1040), Supplemental Income and Loss ."

Internal Revenue Services. " Publication 596, Earned Income Credit (EIC) ."

Internal Revenue Service. " About Schedule EIC (Form 1040 or 1040-SR), Earned Income Credit ."

Internal Revenue Service. " Earned Income Credit Qualifying Child Information ."

Internal Revenue Service. " About Schedule F (Form 1040), Profit or Loss From Farming ."

Internal Revenue Service. " About Schedule H (Form 1040), Household Employment Taxes ."

Internal Revenue Service. " About Schedule J (Form 1040), Income Averaging for Farmers and Fisherman ."

Internal Revenue Service. " About Schedule R (Form 1040), Credit for the Elderly or the Disabled ."

Internal Revenue Service. " About Schedule SE (Form 1040), Self-Employment Tax ."

Internal Revenue Service. " About Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents ."

• Guide To Federal Tax Forms 1 of 54
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Trump Spurned by 30 Companies as He Seeks Bond in $454 Million Judgment

Donald J. Trump’s lawyers said in a court filing that he faces “insurmountable difficulties” as he tries to raise cash for the civil fraud penalty he faces in New York.

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By Ben Protess ,  Maggie Haberman and Kate Christobek

Donald J. Trump’s lawyers disclosed on Monday that he had failed to secure a roughly half-billion dollar bond in his civil fraud case in New York, raising the prospect that the state could seek to freeze some of his bank accounts and seize some of his marquee properties.

The court filing, coming one week before the bond is due, suggested that the former president might soon face a financial crisis unless an appeals court comes to his rescue.

Mr. Trump has asked the appeals court to pause the $454 million judgment that a New York judge imposed on Mr. Trump in the fraud case last month, or accept a bond of only $100 million. Otherwise, the New York attorney general’s office, which brought the case, might soon move to collect from Mr. Trump.

Still, even if the higher court rejects his appeal, Mr. Trump is not entirely out of options . He might appeal to the state’s highest court, quickly sell an asset or seek help from a wealthy supporter.

Mr. Trump’s team has also left the door open to exploring a bankruptcy for corporate entities implicated in the case, according to people with knowledge of the discussions. That option, however, is politically fraught during a presidential race in which he is the presumptive Republican nominee, and for now it appears unlikely.

The judge in the civil fraud case, Arthur F. Engoron , levied the $454 million penalty and other punishments after concluding that Mr. Trump had fraudulently inflated his net worth to obtain favorable loans and other benefits. The case, brought by the New York attorney general, Letitia James, has posed a grave financial threat to Mr. Trump.

The former president has been unable to secure the full bond, his lawyers said in the court filing on Monday, calling it a “practical impossibility” despite “diligent efforts.” Those efforts included approaching about 30 companies that provide appeal bonds, and yet, the lawyers said, he has encountered “insurmountable difficulties.”

The company providing the bond would essentially promise to cover Mr. Trump’s judgment if he lost an appeal and failed to pay. In exchange, he would pledge cash and other liquid assets as collateral, and he would pay the company a fee as high as $20 million.

But Mr. Trump does not have enough liquidity to obtain the bond. The company would require Mr. Trump to pledge more than $550 million in cash and securities as collateral — a sum he simply does not have.

Although the former president boasts of his billions, his net worth is derived largely from the value of his real estate, which bond companies rarely accept as collateral. Mr. Trump has more than $350 million in cash , a recent New York Times analysis found, far short of what he needs.

He might have to post an appeal bond worth more than $454 million — possibly above $500 million, to reflect the interest he will owe — in order to prevent Ms. James from seizing his assets on March 25.

Under the law, Ms. James could have moved to collect from Mr. Trump as soon as Justice Engoron ruled, but she offered a 30-day grace period, until March 25. It is unclear whether she will provide Mr. Trump extra time or if she will move swiftly to collect. Nor is it clear whether the appellate court will rule on his plea for help before the deadline.

Mr. Trump could also seek to appeal to New York’s highest court, and it is unclear whether Ms. James will hold off on the seizure while he pursues that route.

A spokeswoman for Ms. James did not immediately respond to a request for comment.

Mr. Trump has denied all wrongdoing and claimed that Ms. James and Justice Engoron, both Democrats, are out to get him.

“This is a motion to stay the unjust, unconstitutional, un-American judgment from New York Judge Arthur Engoron in a political witch hunt brought by a corrupt attorney general,” Steven Cheung, a spokesman for Mr. Trump’s campaign, said in a statement. “A bond of this size would be an abuse of the law, contradict bedrock principles of our republic, and fundamentally undermine the rule of law in New York.”

The looming deadline could not come at a worse time for Mr. Trump. He also faces four criminal indictments, including one in Manhattan that is tentatively set for trial in mid-April.

And just last week he finalized a $91.6 million bond in a defamation case he recently lost to the writer E. Jean Carroll, a costly deal that drained him of precious cash.

Mr. Trump, who obtained that bond from the insurance giant Chubb, pledged an investment account at Charles Schwab as collateral, records show. He most likely pledged more than $100 million in cash and stocks and bonds that he could sell in a hurry — investments that are now no longer available for him to use in the civil fraud case.

A nearly $500 million bond, Mr. Trump’s lawyers wrote on Monday, “is unprecedented for a private company.”

Yet Mr. Trump’s legal team “devoted a substantial amount of time, money, and effort” to finding one, according to a court filing by Alan Garten, the top lawyer at Mr. Trump’s family business.

Using four separate brokers, the lawyers approached more than two dozen companies that provide appellate bonds, including Chubb and Berkshire Hathaway, the conglomerate run for decades by Warren E. Buffett, Mr. Garten said. He added that most of the companies were either unable or unwilling to handle a bond of this size, and that none were willing to accept property as collateral.

Their best bet appeared to be Chubb, but within the past week, Chubb notified Mr. Trump’s lawyers that it, too, could not accept property as collateral.

“This presents a major obstacle,” Mr. Garten wrote.

Mr. Trump’s company has not ruled out the possibility of having the corporate entities declare bankruptcy, the people with knowledge of the discussions said. That move would automatically halt the judgment against those entities and prevent Ms. James from seizing some of the former president’s properties.

But Mr. Trump, scarred from an experience in the 1990s when some of his companies filed for bankruptcy, is likely to balk at a filing.

And even if he supported it, bankruptcy — which Mr. Trump used to describe derisively as “the b-word” — might not be a cure-all, legal experts said. Seeking court protection could trigger defaults in loans he holds, and would most likely set off litigation over whether Mr. Trump is still responsible to pay his company’s debts.

Mr. Trump’s lawyers on Monday also submitted a filing from one of his insurance brokers, Gary Giulietti, who said his team had for several weeks been “scouring the market” for a bond.

“Simply put, a bond of this size is rarely, if ever, seen,” he wrote.

Mr. Giulietti, who testified as an expert witness at the trial, also occasionally golfs and dines with Mr. Trump.

In his decision, Justice Engoron criticized his testimony, saying that in more than 20 years on the bench, he had never encountered an expert witness who “not only was a close personal friend of a party, but also had a personal financial interest in the outcome of the case.”

Ben Protess is an investigative reporter at The Times, writing about public corruption. He has been covering the various criminal investigations into former President Trump and his allies. More about Ben Protess

Maggie Haberman is a senior political correspondent reporting on the 2024 presidential campaign, down ballot races across the country and the investigations into former President Donald J. Trump. More about Maggie Haberman