Generally, people don’t like paying taxes. When their paycheck comes, they see that a large amount of money is taken out and they wonder where it’s all going. And then during tax time, they might get frustrated because they come to find out they owe the government even more money.
However, as annoying as paying taxes can be, it also ensures that roads are built, infrastructure is maintained, and citizens have access to the critical services they need to survive. Without taxes, society could potentially suffer.
By learning about why we pay taxes, you may begin to appreciate everything they do for you and your fellow taxpayers.
They Fund Federal Programs
When you pay taxes, you’re sending some money to your state and local government, and some to your federal government. In terms of federal taxes, you’re funding federal programs such as Social Security, public health insurance like Medicaid and Medicare, the U.S. military, safety net programs like school meals and Supplemental Security Income, and interest on government debt. Additionally, your federal tax dollars could be put towards benefits for veterans and federal retirees, education, transportation, international affairs, and science and medical research.
They Fund State and Local Programs
When you pay state and local taxes, you’re funding programs in your area. Tax revenue pays for elementary and secondary education, hospitals, the police, the fire department, welfare programs, roads, higher education, libraries, and corrections.
Now that you know what kinds of benefits you and other taxpayers receive, here is some information on how our tax system was set up.
A History of Taxes in the United States
The U.S. was founded in an effort to rid of high taxation, but over time, taxes have slowly crept into our system. The government was funded by tariffs and not taxes at first. There were some taxes levied, but only during wartime. For instance, during the Civil War, the first federal income tax was introduced to fund the war. In 1862, Congress created the Bureau of Internal Revenue, which was a predecessor to the IRS. The income tax ended up being repealed in 1872.
The 16th Amendment, which was passed in 1909 and ratified in 1913, reintroduced the income tax. Since 1950, income taxes on individuals have been the largest source of revenue for the federal government. Along with payroll taxes, income taxes make up about 80% of all federal revenue.
The U.S. has a progressive tax system, which means that the more money you make, the more taxes you pay. As of 2021, there are seven tax brackets with different rates, which are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The Different Types of Taxes in the U.S.
While individual income tax is the big one, there are other types of taxes you may or may not be aware of, including:
- Payroll tax
- Corporate income tax
- Capital gains tax
- Gross receipts tax
- Sales tax
- Excise tax
- Value-added tax
- Tangible personal property tax
- Property tax
- Estate and inheritance tax
Keep in mind that you will have to file a tax return if you make a gross income that amounts to over $12,400 per year, or if you’re self-employed, $400 per year.
You don’t just file if you make an income. If you made money on investments, an inheritance, or real estate, for example, then you’d also have to file.
Filing Your Taxes
Every year you file your income tax return. When you do this, you’ll know if you have to pay the government or if the government owes you a refund.
For assistance filing your taxes, you can turn to TaxAct. With our plans, you’ll be able to file on your own or with the help of a CPA or tax expert. Our experts will let you know what kinds of deductions or credits you can take so you can lower your tax bill, get your best possible tax refund, and ensure that you’ve done everything correctly.
To get started, sign up for one of TaxAct’s plans today.