Understanding Federal Taxes

Federal taxes are a crucial component of the United States' government revenue system. They are collected by the federal government on income, goods, and services to fund public programs and services, such as national defense, education, healthcare, and infrastructure.

Types of Federal Taxes

There are several types of federal taxes that individuals and businesses may need to pay:

1. Income Tax

Income tax is a tax on the money earned by individuals and businesses. It is calculated based on the taxpayer's taxable income, which is the total income minus any deductions or exemptions. The federal government uses a progressive tax system, which means that the more you earn, the higher percentage of tax you pay. Income tax returns are due on April 15th of each year.

2. Payroll Tax

Payroll tax is a tax on wages and salaries paid to employees by their employers. It is used to fund programs like Social Security and Medicare. The employer deducts the payroll tax from the employee's paycheck and sends it to the federal government.

3. Excise Tax

Excise tax is a tax on specific goods and services, such as alcohol, tobacco, gasoline, and airline tickets. These taxes are often included in the price of the item or service and are paid by the consumer.

4. Estate and Gift Tax

Estate and gift tax is a tax on the transfer of property or assets from one person to another. It applies to transfers made during a person's lifetime or at the time of their death. The tax is only applied to large transfers and does not affect most Americans.

How to Pay Federal Taxes

Individuals and businesses can pay federal taxes through various methods:

• Online: The Internal Revenue Service (IRS) offers online payment options through their website.
• Mail: Taxpayers can also mail a check or money order to the IRS.
• Automatic Withdrawal: Taxpayers can set up automatic withdrawals from their bank accounts to pay their taxes.
• In Person: Payments can be made in person at an IRS Taxpayer Assistance Center or authorized payment provider.

Calcuating Federal Tax

For the first 2 types of taxes, you can use our calculator to estimate your federal tax liability and see the breakdowns.