They say that there is nothing in this world that is certain, except death and taxes. But there’s quite a lot about taxes that is uncertain, and quite a lot that varies from local to national, and from country to country. With so many politicians campaigning on promises of less taxation or more, it’s important to know how we’re being taxed, how everyone else is being taxed, where the money is going, and how the other nations of the world are handling these same questions.
In the United States, everyone must pay taxes on the income they receive during the year – whether this money is wages from work, a big lottery win, returns off a stock, or any other number of sources. For most people this income comes in the form of a paycheck from their employer, and a certain percentage of this paycheck is withheld and sent to the Internal Revenue Service or IRS on a regular basis. A fraction of this withheld amount is applied to Medicare (1.45%) and to Society Security (6.2%), and that percentage is matched equally by the employer. Medicare is the federal health insurance program for people who are 65 or older, and covers certain other disabilities and diseases in younger citizens. Social Security is monetary assistance from the government for citizens with inadequate income or no income.
For those who have had income withheld along the way, the date in April when tax forms pertaining to the year before are due to be filed is one of hope – will there be refund money because too much was withheld? For others who haven’t paid-as-they-went, and for those who withheld too little, the bill is due. The amount paid in federal taxes depends on a number of different factors: age; disabilities; military service; filing jointly with a spouse, or as a single; dependents, like children; major economic ventures within the relevant year, like buying a house or attending college; itemised deductions, such as charitable contributions, large medical expenses, or mortgage interest; and most importantly – how much taxable income you earned/won/gained during the past year. In order to know what you owe, you have to know what is and isn’t taxable income. This information is available on the IRS website. Some non-taxable income includes child support and inheritances.
The Federal income tax has 7 brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. In 2016, filing single, if you made $18,550 or less of taxable income, you paid 10%, and if you made $415,051 or more, you paid $120,529.75 plus 39.6% of the amount over $415,050. On the IRS website there are a number of graphs illustrating the different brackets and filing statuses.
There are a few circumstances which do not require a tax return to be filed, mainly if one’s income for a particular year is less than a certain amount (approximately $10,000, depending upon a few factors, but only $400 for those who file as self-employed). But even for people who are not required to file, it can sometimes be beneficial.
You can file for free online through the IRS website, but with all the factors to consider, almost half of taxpayers turn to tax preparation professionals to handle their returns. They say taxes are certain, but they have never said they were simple.