Summary of Law and Regulations Relating to Individuals Persons Subject to Tax The Federal Income Tax applies to citizens and residents of the United States and to nonresident aliens with respect to the United States. Non-resident aliens, however, are taxed only on income derived from sources within the United States. Residence Defined "Residence," is held to be "that place where a man has his true, fixed and permanent home and principal establishment, and to which, whenever he is absent, he has the intention of returning; and indicates permanency of occupation as distinct from lodging or boarding, or temporary occupation." For the purposes of the income tax, it is held that where for business purposes or otherwise, an alien is permanently located in the United States; has there his principal business establishment and is there permanently occupied or employed, even though his domicile may be without the United States, he will be held to be "a resident of the United States," while aliens who are physically present in the United States, but only temporarily resident or employed therein (as for a season or other similarly definite term, and with the expectation or intention of leaving the United States upon the termination of employment or accomplishment of the purpose which necessitated presence in the United States), are within the class of "non-resident aliens." Normal Tax Rate of Taxation The normal tax, which shall be paid upon the net income of citizens and residents of the United States, subject to certain exemptions and credits hereinafter described, shall be assessed and collected as follows: Under the Act of September 8, 1916, the normal tax shall be at the rate of two per centum on net income in excess of allowable deductions and credits, and the personal exemption of $3,000 for single persons, or $4,000 for married persons or heads of families (with additional $200 for each dependent child). Under the Act of October 3, 1917, an additional normal tax of two per centum shall be collected on such net income, except that the personal exemption shall be $1,000 for single persons, or $2,000 for married persons or heads of families (with additional $200 for each dependent child). By combining the normal taxes of two per centum, net income in excess of $3,000 for single persons and $4,000 for married persons or heads of families (with additional exemptions for children), is subject to a total normal tax of four per centum. Illustration of Computation of Tax The following example will show the steps in the computation of the normal tax and surtax: "B," a married man, having two dependent children, has a net income of $17,400, including dividends amounting to $3,000; his excess profits tax amounts to $1,000. |