6 answers
4
Questions
6 answers
Updated
David’s Answer
There are so many kinds of taxes! As they say, there are only two unavoidable things in life: death and taxes!
First, income tax: This is a tax on money you earn through work, investments, businesses, etc. When I first entered the working world, I was surprised to learn that the IRS (the US federal tax authority) basically just expects you to remember to file your federal income taxes each year, and have money on hand to pay it! Seems crazy to ask millions of people to just remember on their own, and keep money aside to boot. That said, many employers handle "withholding" on your paycheck, meaning they hold back some of your pay and submit it to the IRS for you, and you only get the remaining amount of each paycheck; but you still have to file a tax form each year to figure out if you owe more (boo!) or get a refund (yay!). April 15 is the traditional due date for filing taxes for the prior year, but you may need to have paid much of it before that date--many rules apply. Federal tax forms can often be found at your local library or community center, as well as online. There are also tax software sold by companies such as Intuit (Turbo Tax) and H&R Block to simplify the process.
Depending on your state, you may also have to file and pay state income tax.
Sales tax is another form of tax that is usually collected by the store when you buy something--varies widely by state and sometimes locality.
Property tax is a tax if you own "real" property like a house--varies widely by state and locality.
Estate and inheritance taxes are paid on your wealth when you die, before passing the remaining to your heirs (the two unavoidable things at the same time!). There is a federal estate tax and some states tax too, but usually only affects very wealthy people. The theory is that rich people should not be allowed to pass their wealth to future generations of their family indefinitely, perpetuating a wealthy class. There's also a federal gift tax that the _giver_ pays for giving large gifts to other people--it's coordinated with the federal estate tax so rich people can't avoid estate tax by giving all their wealth to their kids before dying! Many rules and exclusions apply.
There a many other forms of tax I haven't mentioned, but those are the ones that come immediately to mind for "regular" people--hope that gives you an introductory taste of the wide world of taxes!
First, income tax: This is a tax on money you earn through work, investments, businesses, etc. When I first entered the working world, I was surprised to learn that the IRS (the US federal tax authority) basically just expects you to remember to file your federal income taxes each year, and have money on hand to pay it! Seems crazy to ask millions of people to just remember on their own, and keep money aside to boot. That said, many employers handle "withholding" on your paycheck, meaning they hold back some of your pay and submit it to the IRS for you, and you only get the remaining amount of each paycheck; but you still have to file a tax form each year to figure out if you owe more (boo!) or get a refund (yay!). April 15 is the traditional due date for filing taxes for the prior year, but you may need to have paid much of it before that date--many rules apply. Federal tax forms can often be found at your local library or community center, as well as online. There are also tax software sold by companies such as Intuit (Turbo Tax) and H&R Block to simplify the process.
Depending on your state, you may also have to file and pay state income tax.
Sales tax is another form of tax that is usually collected by the store when you buy something--varies widely by state and sometimes locality.
Property tax is a tax if you own "real" property like a house--varies widely by state and locality.
Estate and inheritance taxes are paid on your wealth when you die, before passing the remaining to your heirs (the two unavoidable things at the same time!). There is a federal estate tax and some states tax too, but usually only affects very wealthy people. The theory is that rich people should not be allowed to pass their wealth to future generations of their family indefinitely, perpetuating a wealthy class. There's also a federal gift tax that the _giver_ pays for giving large gifts to other people--it's coordinated with the federal estate tax so rich people can't avoid estate tax by giving all their wealth to their kids before dying! Many rules and exclusions apply.
There a many other forms of tax I haven't mentioned, but those are the ones that come immediately to mind for "regular" people--hope that gives you an introductory taste of the wide world of taxes!
Updated
Doc’s Answer
Adrian employers withhold (or deduct) some of their employees’ pay in order to cover payroll taxes and income tax. Money may also be deducted, or subtracted, from a paycheck to pay for retirement or health benefits. The amount of money you actually take home (after tax withholding and other deductions are taken out of your paycheck) is called your net income, or take-home pay. Employers send the money that they deduct for taxes to the federal government, and, in many cases, to the state government as well. The government uses this tax revenue to provide public goods and services for the benefit of the community as a whole. For example, federal tax money pays for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.
FEDERAL INCOME TAX – All employers are required to withhold federal income tax from your paycheck. The amount of tax is determined by the Form W-4 you filled out when your hired. This amount depends on allowances for things such as your marital status (because married and unmarried people pay different amounts of taxes) or if you have dependent children. It also varies based on the number of withholding allowances you claim, any additional amount you want the employer to withhold, and any exemptions from withholding that you claim. It’s helpful to understand how the number of withholding allowances impacts the amount of tax withheld from your paycheck.
SOCIAL SECURITY & MEDICARE (FICA TAXES) – FICA stands for Federal Insurance Contributions Act. This is a mandatory payroll tax that funds Social Security and Medicare specifically. The payroll taxes taken from your paycheck include Social Security and Medicare taxes, also called FICA (Federal Insurance Contributions Act) taxes. The Social Security tax provides retirement and disability benefits for employees and their dependents. The Medicare tax provides medical benefits to people age 65 or older, certain younger people with disabilities, and people with permanent kidney failure requiring dialysis or a transplant. Employers pay part of these payroll taxes.
Hope this was helpful
FEDERAL INCOME TAX – All employers are required to withhold federal income tax from your paycheck. The amount of tax is determined by the Form W-4 you filled out when your hired. This amount depends on allowances for things such as your marital status (because married and unmarried people pay different amounts of taxes) or if you have dependent children. It also varies based on the number of withholding allowances you claim, any additional amount you want the employer to withhold, and any exemptions from withholding that you claim. It’s helpful to understand how the number of withholding allowances impacts the amount of tax withheld from your paycheck.
SOCIAL SECURITY & MEDICARE (FICA TAXES) – FICA stands for Federal Insurance Contributions Act. This is a mandatory payroll tax that funds Social Security and Medicare specifically. The payroll taxes taken from your paycheck include Social Security and Medicare taxes, also called FICA (Federal Insurance Contributions Act) taxes. The Social Security tax provides retirement and disability benefits for employees and their dependents. The Medicare tax provides medical benefits to people age 65 or older, certain younger people with disabilities, and people with permanent kidney failure requiring dialysis or a transplant. Employers pay part of these payroll taxes.
Hope this was helpful
Updated
Jason’s Answer
I agree there are many forms of taxes, but the most common is income tax. Income taxes are imposed on you by the federal government and in some cases by the city you work or live in, and local municipalities. The most common way to pay these types of taxes are through payroll deductions. This means your employer withholds a portion of your income and they pay the taxing authorities for you. Generally, speaking you do not need to come up with cash out of pocket, unless you make a ton of money. If that happens you may have to make some additional quarterly payments to make sure you do not owe too much at the end of the year.
The act of paying the tax is important, but equally important is to complete your tax filings , which is usually once a year. Unless, again you make a ton of money, in which case you may to quarterly filings. The important thing to remember of filing, is that you should "file" even if you make very little income. For an honest person, filing is the best way to ensure you will qualify for programs or relief if you are poor. If you are not poor, it is still the right thing to do in order to avoid prison time. Government loves to get their money, so they will look for it.
There are many other taxes, and most were mentioned in other answers, but income tax is usually the one that most people struggle with because the tax rules are still way to complex. If you are young, you can make a career out of simplifying the tax code, you can also get involved in government and find ways to decrease government spending.
The act of paying the tax is important, but equally important is to complete your tax filings , which is usually once a year. Unless, again you make a ton of money, in which case you may to quarterly filings. The important thing to remember of filing, is that you should "file" even if you make very little income. For an honest person, filing is the best way to ensure you will qualify for programs or relief if you are poor. If you are not poor, it is still the right thing to do in order to avoid prison time. Government loves to get their money, so they will look for it.
There are many other taxes, and most were mentioned in other answers, but income tax is usually the one that most people struggle with because the tax rules are still way to complex. If you are young, you can make a career out of simplifying the tax code, you can also get involved in government and find ways to decrease government spending.
Updated
Jon’s Answer
What an advanced question!
At your age, you probably do not have to worry about paying taxes for quite some time. Generally at a young age you do not make much income, and therefore you really won't pay much in terms of taxes. For certain income levels, you actually won't pay anything at all. You can look at the forms online here: https://www.irs.gov/forms-pubs/about-form-1040-ez
There are even online videos to watch that are a good way to get started: https://www.irs.gov/forms-pubs/about-form-1040-ez
In filling out your first set of tax returns, you may want to lean on your parents, relatives or close friends for advice and guidance. Even if you find it straight forward, it may help you feel more confident and reinforce the concepts.
As you get older, you will likely make more money and have to pay taxes. Plus as you have kids, buy a house and other aspects of your life change, you'll need to adapt your approach to paying taxes. It does become more complicated. While I have done my own taxes for years, including doing it on paper, then using software and later online, I did find it worth money to pay for a software solution. I use TurboTax and am very satisfied with it throughout the years. I would recommend using it when you are older and maybe even once when you are younger and at the very beginning stages of your career. It offers a very simple and friendly experience plus it asks questions to help you fill in a field, and it is done in a very but effective way. It helps you learn and feel comfortable you are approaching your taxes correctly.
At some point, your taxes may become even more complicated. Certain life events (i.e. starting a business, inheriting money or property, certain retirement planning, etc.) are more complicated and it may make sense to seek an outside opinion. At that point, you can google for a Tax CPA or local tax firm. Maybe seek a recommendation from someone you know that may already be using one.
Good luck and keep asking great questions!
At your age, you probably do not have to worry about paying taxes for quite some time. Generally at a young age you do not make much income, and therefore you really won't pay much in terms of taxes. For certain income levels, you actually won't pay anything at all. You can look at the forms online here: https://www.irs.gov/forms-pubs/about-form-1040-ez
There are even online videos to watch that are a good way to get started: https://www.irs.gov/forms-pubs/about-form-1040-ez
In filling out your first set of tax returns, you may want to lean on your parents, relatives or close friends for advice and guidance. Even if you find it straight forward, it may help you feel more confident and reinforce the concepts.
As you get older, you will likely make more money and have to pay taxes. Plus as you have kids, buy a house and other aspects of your life change, you'll need to adapt your approach to paying taxes. It does become more complicated. While I have done my own taxes for years, including doing it on paper, then using software and later online, I did find it worth money to pay for a software solution. I use TurboTax and am very satisfied with it throughout the years. I would recommend using it when you are older and maybe even once when you are younger and at the very beginning stages of your career. It offers a very simple and friendly experience plus it asks questions to help you fill in a field, and it is done in a very but effective way. It helps you learn and feel comfortable you are approaching your taxes correctly.
At some point, your taxes may become even more complicated. Certain life events (i.e. starting a business, inheriting money or property, certain retirement planning, etc.) are more complicated and it may make sense to seek an outside opinion. At that point, you can google for a Tax CPA or local tax firm. Maybe seek a recommendation from someone you know that may already be using one.
Good luck and keep asking great questions!
Updated
Kim’s Answer
Adrian,
You've gotten some good answers. To that, I would add, is it is very important to calculate your annual taxes correctly. It's pretty simple with one job in a one-earner household. Your employer will have you complete a W-4 form, which provides instructions on how to make this calculation. But, if you have multiple jobs or live in a two-worker household, it's more complex. There are various on-line calculators you can use. Most people prefer to overpay their taxes, and then get a large return. However, people who are more financially independent will prefer to end up owing taxes, as they don't like the idea of "loaning" their money to the government interest-free. Again, this is only for those who can manage to come up with a big chunk of money on April 15th - the rest prefer to play it safe.
What gets more complicated is if you are a 1099 employee. This means you are actually self-employed. Taxes are not held out of your check (such as Uber drivers, unless that has changed.) When you go to do your taxes, about 20% (or more) will go towards income tax and social security tax. If you lose your job, you will not qualify for Unemployment Benefits, and, I think if you get hurt while working, you won't get Workers Comp payments. The 1099 jobs may not be as appealing as they appear to be!
You've gotten some good answers. To that, I would add, is it is very important to calculate your annual taxes correctly. It's pretty simple with one job in a one-earner household. Your employer will have you complete a W-4 form, which provides instructions on how to make this calculation. But, if you have multiple jobs or live in a two-worker household, it's more complex. There are various on-line calculators you can use. Most people prefer to overpay their taxes, and then get a large return. However, people who are more financially independent will prefer to end up owing taxes, as they don't like the idea of "loaning" their money to the government interest-free. Again, this is only for those who can manage to come up with a big chunk of money on April 15th - the rest prefer to play it safe.
What gets more complicated is if you are a 1099 employee. This means you are actually self-employed. Taxes are not held out of your check (such as Uber drivers, unless that has changed.) When you go to do your taxes, about 20% (or more) will go towards income tax and social security tax. If you lose your job, you will not qualify for Unemployment Benefits, and, I think if you get hurt while working, you won't get Workers Comp payments. The 1099 jobs may not be as appealing as they appear to be!
Updated
Allyson’s Answer
Regarding how do you pay taxes - there are different means for the different taxes you might be required to pay.
Most everyone that earns income has to pay Federal and State income tax. Federal income tax requirements are determined by the Internal Revenue Service. In most cases, your employer will deduct money from your paycheck to ensure your taxes are paid - however, you must still FILE the appropriate forms (which can be found at irs website) to confirm that you either have already paid enough OR paid too much and are due a refund. There are agencies like Jackson Hewitt and HR Block (AND individuals/CPAs) that will file on your behalf - which can be worthwhile to ensure they are done correctly the first time or two. If you review what they file, you should become familiar enough and be able to do them yourself (especially with the use of tax software).
If you own property, the county for that property will assess you. You can usually do an internet search with name of the county in which you reside followed by 'Tax Assessor' (example Dekalb County Tax Assessor) that will get you to a site where you can pay online. If you own a car, the DMV in that county will assess you. In either case, you should receive a communication in the mail detailing how much you owe and how to pay.
Sales tax is applied to most purchases at point of sale -- and is also determined by how much the county in which you are making the purchase has set. You may notice one county has taxes that are higher than others - which might be a consideration when making larger purchases.
Most everyone that earns income has to pay Federal and State income tax. Federal income tax requirements are determined by the Internal Revenue Service. In most cases, your employer will deduct money from your paycheck to ensure your taxes are paid - however, you must still FILE the appropriate forms (which can be found at irs website) to confirm that you either have already paid enough OR paid too much and are due a refund. There are agencies like Jackson Hewitt and HR Block (AND individuals/CPAs) that will file on your behalf - which can be worthwhile to ensure they are done correctly the first time or two. If you review what they file, you should become familiar enough and be able to do them yourself (especially with the use of tax software).
If you own property, the county for that property will assess you. You can usually do an internet search with name of the county in which you reside followed by 'Tax Assessor' (example Dekalb County Tax Assessor) that will get you to a site where you can pay online. If you own a car, the DMV in that county will assess you. In either case, you should receive a communication in the mail detailing how much you owe and how to pay.
Sales tax is applied to most purchases at point of sale -- and is also determined by how much the county in which you are making the purchase has set. You may notice one county has taxes that are higher than others - which might be a consideration when making larger purchases.