Individual income tax is also referred to as personal income tax and is levied on wages, salaries, and other types of income. This tax is usually a tax the state imposes. Because of exemptions, deductions, and credits, most individuals do not pay taxes on all of their income. The IRS offers a series of deductions (e.g. deductions for health care, investments and education expenses) which taxpayers use to reduce their taxable income. For example, if a taxpayer earns $100,000 in income and qualifies for $20,000 in deductions, the taxable income reduces to $80,000 ($100,000 – $20,000). Tax credits are used to reduce the taxpayer’s tax obligation or amount owed. To illustrate, if an individual owes $20,000 in taxes but qualifies for $4,500 in credits, his tax obligation reduces to $15,500 ($20,000 – $4,500).