How do taxes work in the US?
Learn how taxes work in the U.S., including federal income tax, payroll tax, sales tax, property tax, and more. Understand tax brackets, deductions, and how to file your taxes efficiently
Taxes in the U.S. are collected at federal, state, and local levels to fund government programs and services. The tax system includes income taxes, payroll taxes, sales taxes, property taxes, and excise taxes.
1. Income Taxes
- The U.S. has a progressive tax system, meaning higher income earners pay a higher percentage.
- The IRS (Internal Revenue Service) collects federal income taxes, while states may also tax income (some states, like Florida and Texas, have no state income tax).
- Taxpayers file returns annually (by April 15).
- Deductions and credits can lower taxable income (e.g., child tax credit, mortgage interest deduction).
2. Payroll Taxes (FICA Taxes)
- Fund Social Security (6.2%) and Medicare (1.45%).
- Employers match these contributions.
- Self-employed individuals pay both portions (total 15.3%).
3. Sales Taxes
- Charged on goods and services at the state and local levels.
- Sales tax rates vary by state (some states, like Oregon, have no sales tax).
4. Property Taxes
- Paid by homeowners based on property value.
- Local governments use property taxes to fund schools, roads, and public services.
5. Excise Taxes
- Taxes on specific goods (e.g., gasoline, cigarettes, alcohol).
- Often included in the price of the product.
How Taxes Are Paid
- Withholding: Employers deduct taxes from paychecks.
- Estimated Taxes: Self-employed workers and investors pay quarterly estimated taxes.
- Tax Refunds: If too much tax was withheld, the IRS issues a refund.
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