What are Federal Income Taxes?

The US federal government takes many kinds of taxes from its citizens, with the most common type being the federal income taxes. The tax money that the government receives from its citizens is used to effectively “run the country” and pay for things such as Medicare, public services, and benefits. Different laws and regulations govern different types of taxes, though the idea behind them remains the same. Whenever you receive money for work, a portion of that money has to go towards the federal government.

Income taxes

As aforementioned, income tax is the most common type of federal tax that you will pay. Incomes taxes are designed to collect a portion of money from any company or person who earns money during the year. The rules governing tax are all-encompassing, and certain tax rates (i.e. percentages) apply to certain amounts of money (i.e. tax brackets) no matter how the money or assets in question was earned.

Though the rules are rather overarching, there are some “tax breaks” and other exceptions available. There is a multitude of tax credits, tax deductions, and tax exclusions that disregard or modify the rules for different people or companies. For example, self-employed people are likely to receive tax deductions and expenses due to their overhead costs and “riskier” employment status. The fact that they have to rely on themselves for income (rather than a multi-million-dollar employer) means that the federal government generally deducts less tax from them.

Employment taxes

If you are an employee of a company, you will see employment taxes (sometimes called “payroll taxes”) deducted from your paycheck. This is in addition to your federal income tax withholding, which we discussed earlier. These employment taxes are spent by the federal government on schemes such as Medicare and Social Security schemes.

As of 2018, 6.2% of your first $127,200 of earnings must be paid to fund Social Security, and 1.45% of all your earnings must be paid to fund Medicare. Your employer also pays an equal amount to what you pay (matching your contributions dollar for dollar) though this does not concern you, and this money does not come out of your paycheck.

Tax Brackets

Tax brackets are basically thresholds or groups which determine how much tax you will pay, assuming you have no applicable tax deductions or exclusions. They differ slightly depending on whether you are single, married, or the sole earner for your household. For example, if you are a single person who earns $25,000 per year, you will fall into the $9,325 – $37,950 single person tax bracket. This means that you will be charged taxes at the same rate as any other single person earning between $9,325 and $37,950 per year, assuming you have no deductibles.

As of 2018, the tax brackets and associated tax percentages as follows. Do bear in mind that if you are at a higher threshold, you will pay taxes on your money at different stages. For example, a single person earning $100,000 will pay 10% on the first $9,525 of their income, 12% on the next $9,526 to $38,700 of their income, 22% on the next $38,701 to $82,500 of their income, and finally 24% on $82,501 up to their salary of $100,000.

Tax rateSingleMarried, filing jointlyMarried, filing separatelyHead of household
10%$0 to $9,525$0 to $19,050$0 to $9,525$0 to $13,600
12%$9,526 to $38,700$19,051 to $77,400$9,526 to $38,700$13,601 to $51,800
22%$38,701 to $82,500$77,401 to $165,000$38,701 to $82,500$51,801 to $82,500
24%$82,501 to $157,500$165,501 to $315,000$82,501 to $157,500$82,501 to $157,500
32%$157,501 to $200,000$315,001 to $400,000$157,501 to $200,000$157,501 to $200,000
35%$200,001 to $500,000$400,001 to $600,000$200,001 to $300,000$200,001 to $500,000
37%$500,001 or more$600,001 or more$300,001 or more$500,001 or more