The term income tax refers to a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction. ... Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens. Income tax is defined as money the government takes out of your earnings in order to pay for government operations and programs. Fifteen percent of your income deducted from your paycheck and paid to the government to maintain the military and social welfare programs is an example of income tax.