It’s tax season, which means that many Americans are scrambling to get their paperwork in order and file their taxes on time. But how much do we actually pay in taxes? The answer may surprise you. The average American pays a total of $10,489 in taxes every year. That’s nearly $900 per month! While this may seem like a lot, it’s important to remember that taxes fund vital services like roads, schools, and the military.
They also help reduce the deficit and pay for social programs like Medicare and Medicaid. Still, it’s no secret that the tax system is far from perfect. In fact, there are many ways that the average American could be paying less in taxes. If you’re looking to lower your tax bill, check out these tips.
The Federal Income Tax
The Federal Income Tax is the tax that most Americans are familiar with. It is a progressive tax, meaning that the more income you make, the higher percentage of your income you will pay in taxes. The Federal Income Tax is imposed on individuals, corporations, and other entities by the federal government. The tax rates progress from 10% to 37% of taxable income.
The State Income Tax
In the United States, state income taxes are levied by 44 states and 2 territories. The top marginal tax rate ranges from 0% to 13.3%. The average effective state tax rate is 5.11%.
The vast majority of Americans pay more in federal payroll taxes than they do in state income taxes. However, there are a few states where the opposite is true. In Alaska, for example, the average effective state tax rate is 2.76%, while the average effective federal payroll tax rate is 6.2%.
There are a number of factors that go into determining how much someone pays in state income taxes. These include the individual’s taxable income, the tax rate schedule that applies to their income bracket and any deductions or credits that they may be eligible for.
For most people, the amount of state income tax they pay will be a relatively small percentage of their overall tax bill. However, for high-income earners in states with high marginal tax rates, state income taxes can take up a significant chunk of their total tax liability.
The Property Tax
The average American pays a lot in taxes – income tax, sales tax, property tax, and more. But how much does the average American pay for each type of tax?
Income Tax: The average American worker pays $7,000 in federal income taxes each year. This includes payroll taxes (Social Security and Medicare) as well as income taxes.
Sales Tax: The average American family pays $1,600 in state and local sales taxes each year. This includes both the sales tax on goods and services as well as gas and vehicle excise taxes.
Property Tax: The average American homeowner pays $2,200 in property taxes each year. This includes both real estate taxes and personal property taxes (such as car registration fees).
The Sales Tax
The vast majority of Americans pay taxes in the form of a sales tax. A sales tax is a tax on the purchase of goods and services. The rate of tax varies from state to state, but the average rate is around 7%. This means that for every $100 you spend, you will pay $7 in taxes.
Some states have a higher sales tax rate than others. For example, California has a rate of 7.25%, while Tennessee has a rate of 9.45%. There are also some localities that add their own sales taxes on top of the state rate. For example, in New York City, the combined state and local sales tax rate is 8.875%.
Sales taxes can be a significant expense for families, especially those on a tight budget. In fact, according to one estimate, the average family pays more than $1,000 in sales taxes each year.
There are some ways to minimize the impact of sales taxes. One option is to shop online, where you may be able to avoid paying any sales taxes at all (depending on the retailer and the item purchased). Another option is to purchase items that are exempt from sales taxes, such as food and medicine.
In addition to the taxes already discussed, there are other taxes that Americans pay.
• Property taxes: Most states and localities levy property taxes, which are based on the value of your home or other property. The average effective property tax rate in the U.S. is 1.08%, meaning the average homeowner pays $2,197 in property taxes each year.
• Capital gains tax: This is a tax on profits from the sale of assets such as stocks, bonds, and real estate. It is levied at a maximum rate of 20% for individuals.
• Inheritance tax: This is a tax on money or property received from someone who has died. It is levied at a maximum rate of 40% for individuals.
• Excise taxes: These are taxes on specific goods and services, such as gasoline, alcohol, and cigarettes. The federal government collected $87 billion in excise taxes in 2018.
How Tax Brackets Impact Rates
The federal tax system in the United States is progressive, meaning that people with higher incomes pay higher tax rates. The income levels at which these higher rates kick in are called tax brackets.
For 2019, there are seven tax brackets, ranging from 10% to 37%. The bracket you fall into depends on your taxable income and filing status.
Here’s a breakdown of the 2019 tax brackets:
10% (for single filers with taxable income up to $9,700; for married couples filing jointly with taxable income up to $19,400)
12% (for single filers with taxable income over $9,700 but less than $39,475; for married couples filing jointly with taxable income over $19,400 but less than $78,950)
22% (for single filers with taxable income over $39,475 but less than $84,200; for married couples filing jointly with taxable income over $78,950 but less than $168,400)
24% (for single filers with taxable income over $84,200 but less than $160,725; for married couples filing jointly with taxable income over $168,400
Calculating the Tax Wedge
The tax wedge is the difference between what workers are paid and what they would be paid if there were no taxes. The tax wedge can be calculated by subtracting the after-tax wage from the before-tax wage. For example, if a worker is paid $20 per hour before taxes and $15 per hour after taxes, the tax wedge would be $5 per hour.
The tax wedge can also be calculated as a percentage of the before-tax wage. In our example, the tax wedge would be 25% ($5/$20).
The tax wedge is one way to measure the burden of taxes on workers. It’s important to note that the tax wedge doesn’t take into account other factors that can affect workers’ take-home pay, such as deductions for retirement savings or health insurance premiums.