Paying taxes in the United States

How do the federal, state, and local governments pay for the services? The answer is not that the government prints money as much needed. If this was the case, I ask myself who will work to print the money? The answer is that no one would want to print the money as there will be no monetary incentive to work. Basically, everyone in the society will not trade their skills and time for money as it can be printed freely without any limitations. So in essence the money will become useless.

So how else is the government able to provide all the services without printing money unnecessarily? This is where we all come in into the picture. As U.S. citizens and residents, we pay taxes at all levels (federal, state, and local) of the government. Our taxes pay for services provided by the government.

What services can we expect from the government? Below lists some examples of services provided by the federal government:

  • keeping our country safe and secure,
  • protecting our money in banks,
  • providing funding, loans, and financial assistance to support children and adult education programs,
  • preventing and curing diseases through research,
  • building and maintaining our roads and highways,
  • providing medical services for the poor and elderly, and
  • giving emergency help when natural a disaster strike, such as hurricanes, floods, or earthquakes

If we did not pay our taxes, who will provide such services?

The government collects taxes from its people in number of ways: income tax, sales tax, and property tax.

Income taxes

You pay your income tax to federal, most state, and some local governments. You are taxed on your taxable income. That is any money that you get from wages, self-employment, tips, and the sale of property. For most people, taxes are paid before they even see their paycheck. This is because the income tax money is withheld from their paycheck. The amount of income tax withheld from your paycheck depends on how much you earn. Those who earn more, they pay more in income taxes. Conversely, income tax rates are lower for people who make less money. If you are self-employed, you pay taxes based on your tax rate.

The Internal Revenue Service (IRS) is the federal agency that collects income taxes. Each year in April, taxpayers file a federal income tax return Form 1040 with the IRS. Your tax return tells the government how much you earned and how much in taxes was taken out of your paycheck. If your return shows that too much was taken out of your paycheck, you will get a refund. If, on the other hand, your tax return shows that not enough was taken out of your paycheck, you will need to send in your payment to the IRS.

If you look at your paycheck closely, you will notice beside federal income taxes, money is deducted from your paycheck for Social Security and Medicare. The social security money is withheld from your paycheck to pay benefits for certain retired, disabled or deceased workers and their families. Medicare taxes you pay are used for medical services for most people over the age of 65 years.

You may also see other deductions on your paycheck for medical insurance, retirement contributions or any other benefits offered by your employer.

Sales taxes

These are the state and local taxes. Sales taxes help pay for services provided by state and local government, such as road construction, police services, fire services, trash pickup, and so on. Sales taxes are charged at a certain rate such as 5% or 6% when you make a purchase. If you go to Best Buy, for instance, and purchase a laptop for $599 and the tax rate is 6%, you will pay $634.94 (=$599*.06+599). You will pay $35.94 in taxes.

A sales taxes is added to the cost of buying certain items only, milk purchases for instance are excluded from sales tax in Maryland.

Property taxes

These are state and local taxes on your house and land. How much you pay in property taxes is dependent on the location, value, and how much land you have. Higher the property value, higher the taxes. Conversely, low valued houses have low property taxes. In most places, property taxes help support local public schools and pay for other services.

Filing tax returns

Every year US residents are required to file a federal income tax return for your earnings for January to December of the past year. You must file your return by April 15 of each year. By this time, you` also need to annually file your state or local tax returns. Because the tax laws are complicated, you are not alone if you don’t understand how to do your taxes. There are many professionals that can help you prepare your tax returns for a fee. If you are good with technology and have some tax preparation background, you can do your taxes on your own with the aid of tax software.

A W-2 is a federal form that lists your earnings and the taxes you paid for the last tax year: January 1 to December 31. By law, your employer must send you a W-2 form by January 31 each year. If you work or worked for multiple employers during the last tax year, you will receive a W-2 form for each job separately. When you file your tax return, you will need to send a copy of your W-2 form to the IRS.

Posted on 3/13/2007
by Raj Singh