Various Tax Responsibilities for Americans
Taxation in the United States is a complex issue with many different rates that can vary depending on the location of the taxpayer. The following is a brief look at taxes paid by individuals.
Income Tax: Federal, State and Local
The federal government, most states, and many local governments levy taxes on personal income. These taxes are based on the amount of income an individual receives from any source including labor income as well as any money earned from investments such as those through Fisher Investment. Federal income taxes are based on a graduated system with individuals in higher income categories paying a higher percentage of income as tax. Tax returns are filled on April 15th of each year in which an individual earned income. Seven states do not have personal income taxes. These are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Tennessee and New Hampshire tax only interest and dividend income.
Payroll Taxes
Other taxes that are taken by payroll include Social Security and Medicare tax. These apply to all wages or earned income, but do not apply to gifts or borrowed monies in the form of bank loans or direct deposit loans. These taxes are only on earned income. Social Security is known as FICA for Federal Insurance and Contributions Act. The percentage deducted from an individual’s paycheck is 6.2 percent and the employer pays another 6.2 percent. The self-employed must pay both parts, 12.4 percent, as they are their own employers. It is very important for those self-employed to remember to save money so that they can pay their taxes in full when filing each year. Failing to file or not having enough funds to cover your tax liablility will lead to extra fines and fees associated with your back taxes and may necessitate hiring a tax lawyer. Many people may ask, how is income tax considered for those who file bankruptcy? In this case the IRS is treated as any other creditor and their objections are limited to the same terms. Only the first $106,800, as of the 2009 tax year, is taxed. This results in high-income earners paying a lower effective tax rate than those who make below that amount.
Medicare taxes are 2.9 percent of income with half paid by the wage earner and half by the employer. The self-employed must pay the full 2.9 percent.
Sales Tax
State and local governments set rates for sales tax, a tax that is paid when goods or services are purchased. These taxes fund state and local governments. Many school districts are now depending more heavily on sales taxes. Alaska, Delaware, Montana, New Hampshire and Oregon do not have state sales taxes. One important thing to remember about sales tax, is that when making purchases out of state, you may be liable or paying tax on that item within your state. One way to make this easier to monitor is to pay for these purchases via check so that you have the needed back up information from your bank come tax time. Deluxe.com business checks are one good option for businesses but personal checks offer similar advantages for individuals as well.
Real Estate Taxes
Real estate taxes are paid by property owners and are levied by counties and local governments. The taxes are based on the value of the property and may fund local schools, parks, libraries, roads and many other projects.
Personal Property Taxes
These are taxes levied by some state and local governments on automobiles, boats and other personal property. They are collected annually.
Other Taxes
These include excise taxes on cigarettes, alcohol and gasoline. Many states also have a use tax that taxes goods and services purchased outside of the state for which no sales taxes were paid.