When you are an employee of a company, perform a service to someone, and/or sell an item to another person you are rewarded with a payment of some sort. If that payment happens to be money, then that is seen as income. When you pay taxes every year, you are required to pay federal and state income tax. Income tax is the money taken by the government at a federal and state-wide rate from the income you earn throughout the calendar year. It is the tax that takes up the majority of the taxes you owe every year. The basis for how they are calculated depend solely on the amount of income you make during the year. Obviously the more you make, the more you'll end up paying in taxes. Incomes are also split up into tax brackets ranging from 10% all the way up to 39% on the federal level. State tax rates differ so the amount you pay depends on the state you reside in as well.