Taxes are an unavoidable part of life in the United States. From income taxes to payroll taxes, sales taxes to capital gains taxes, and even sin taxes and travel taxes, there are many different types of taxes that Americans must pay. In this comprehensive guide, we'll explore the seven main kinds of taxes that Americans pay and how they work. Income taxes are collected at the federal, state, and local levels.
These taxes are “progressive”, meaning that tax rates increase as taxpayer income increases. This means that people with higher incomes pay more of their income taxes. Payroll taxes are taxes paid on employees' salaries and wages to fund social security programs. Employers remit half of payroll taxes (7.65 percent) directly, while the other half is withheld from employee paychecks.
Although employers pay half of payroll taxes, the economic burden of payroll taxes falls mainly on workers in the form of lower wages. Capital gains taxes are applied to profits earned on stocks and cause double taxation, as corporate profits are already subject to corporate income tax. Sales tax is a tax on goods and services purchased. It is collected at the time of purchase and falls on the buyer or consumer, but the company collects it and remits it to the government.
When calculating sales tax, you multiply the purchase amount by the tax rate applicable to each state. Sin taxes are imposed by both the federal and state governments on items such as tobacco and alcohol products. The goal of sin taxes is to discourage people from purchasing these products considered hazardous to health. Travel taxes can be presented in different forms, such as accommodation tax or rental vehicle tax.
Accommodation tax is in addition to the sales tax collected by the state, while rental vehicle tax is a fixed amount or a percentage. Property taxes are imposed by most local governments and many special-purpose authorities based on the fair market value of the property. Property tax rules and rates vary widely, with average annual rates ranging from 0.2% to 1.9% of the value of a property, depending on the state. Finally, inheritance and gift taxes are imposed by the federal government and some state governments on the transfer of property, inheritance, will, or lifetime gift. These taxes allow a credit for foreign taxes.