Taxes

Taxes
Taxes are a mandatory financial contribution imposed by a government. They can be levied on individuals as well as corporations.

How do Taxes work?

Taxes are imposed by federal, state, and local governments to fund operational functions and services. They’re mandatory—not voluntary— and failure to pay is punishable under law. Taxes can be tied to a variety of things, including income, property, purchases, capital gains, and estates. Rates are determined by the governments that impose them, and they are calculated according to a number of factors particular to each type of tax.

What do Taxes pay for?

In the U.S., the majority of tax revenue goes toward three areas of spending: Medicare and Medicaid (25 percent), social security (24 percent), and defense (16 percent). Other major spending areas include safety net programs (10 percent) and benefits for federal retirees and veterans (eight percent). Education accounts for three percent of federal spending, and transportation infrastructure accounts for two percent.

Where are Taxes lowest and where are Taxes highest?

Tax rates vary widely.

As of 2016, the ten states with the highest income tax are California (13.3 percent), Oregon (9.9 percent), Minnesota (9.85 percent), Iowa (8.98 percent), New Jersey (8.97 percent), Vermont (8.95 percent), District of Columbia (8.95 percent), New York (8.82 percent), Hawaii (8.25 percent), and Wisconsin (7.65 percent).

Seven states have no income tax: Wyoming, Washington, Texas, South Dakota, Nevada, Florida, and Alaska.1

In the world, the United States has the 33rd highest personal income tax rate of 116 nations surveyed in a recent study.2

When are Taxes due?

Tax returns in the U.S. are due on April 15. If April 15 falls on a weekend or legal holiday, the due date is extended to the next business day. Tax returns are considered on time if the envelope is postmarked by the due date.3

Where to file Taxes?

Taxes can be filed several different ways. To file electronically, taxpayers can file for free with the IRS, use tax preparation software, or go through an authorized e-file provider. To file by mail, taxpayers should consult the IRS’s state-by-state list of where tax returns should be sent. Taxes can also be filed through a tax professional.

Where to pay Taxes?

The IRS provides a list of ways to pay taxes. Payments can be made online through IRS Direct Pay, electronic funds withdrawal, same-day wire, the electronic federal tax payment system, or credit card. A check, money order, or cashier’s check—but not cash —can be mailed with a tax return (or separately), and the IRS offers detailed instructions on how to do so. A cash payment can be made through an IRS retail partner.

State taxes can be paid through a number of methods as well, and each state’s department of revenue offers instructions on how to do so.

References:

  1. “States with the highest and lowest taxes.” TurboTax. Accessed January 20, 2017. https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-101/States-with-the-Highest-and-Lowest-Taxes/INF23232.html
  2. Fiske, W., & Jacobson, L. “Trump says U.S. has ‘highest tax rate anywhere in the world”. Politifact.com. Accessed January 20, 2017 from http://www.politifact.com/virginia/statements/2015/oct/20/donald-trump/trump-says-us-has-highest-tax-rate-anywhere-world/
  3. “When, how, and where to file.– APR” IRS.gov. Accessed January 20, 2017. https://www.irs.gov/taxtopics/tc301.html