Final Answer:
For state income tax purposes, "piggyback" means applying a rate to the federal taxable income. The federal taxable income serves as the starting point for calculating state income tax, allowing states to adopt a tax rate based on the taxpayer's federal tax liability.
Step-by-step explanation:
In the realm of state income tax, the term "piggyback" refers to states using the federal taxable income as a foundation for their tax calculations. The federal taxable income essentially acts as the starting point for computing state income tax liability. This approach streamlines the process for states, as they can leverage the federal tax structure and apply their own tax rates to determine the state income tax owed by individuals or businesses.
To delve deeper into the mechanics, federal taxable income is determined by adjusting gross income for various deductions and exemptions. The adjusted gross income becomes the foundation upon which states can then impose their own tax rates.
For example, if a state has a piggyback tax rate of 5%, and an individual's federal taxable income is $50,000, the state tax owed would be $2,500 ([$50,000 * 5%]). This method ensures that states align their tax systems with the federal framework, fostering consistency and efficiency in tax administration.
Piggybacking simplifies the tax calculation process for both taxpayers and state authorities, as it avoids the need for an entirely separate set of rules for state income tax. By leveraging the federal taxable income, states can efficiently collect revenue while maintaining a degree of synchronization with federal tax regulations.