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Income TaxesIncome taxes are taxes governments levy on money earned by businesses and individuals. What's more, they're also many countries' largest source of revenue: In the US, individual income taxes made up nearly half of the federal government's revenue in 2024, while corporate income taxes added another 11%. Enshrined in the 16th Amendment, the individual income tax the US uses today was enacted in 1913. World War II prompted the federal government to greatly expand the number of people required to pay income taxes, from about 5% of American workers in 1939 to 90% submitting tax forms and 60% paying income taxes by the end of the war. Because income taxes' primary purpose is financing government operations—such as funding public programs like food stamps benefiting lower-income households—these taxes are also seen as an economic tool to redistribute resources and reduce inequality. But taxation is historically contentious. Critics argue income taxes discourage career advancement and push taxpayers to move to areas with lower rates.Explore Income Taxes

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Use this calculator to find out what your federal income taxes pay forIn the fiscal year 2024, the US federal government's biggest spending priorities included $1.5T on Social Security, $877B on national defense, and $874B on Medicare. This calculator from the Microsoft AI for Good Lab can help you estimate how your tax dollars are allocated across $6.8T in federal spending. USAFacts Why the rich don't pay taxes like you doThe system behind the US income tax isn't as straightforward as it looks. You earn money. Taxes get taken out. Case closed … right? Not exactly. In this episode of "1440 Explores," we break down how the US tax system actually works, from confusing deductions and misunderstood tax brackets to why the wealthiest Americans often end up paying a very different tax than everyone else. 1440 See which age group pays the most in taxes each year Americans between 45 and 55 pay nearly 30% of all income taxes, bearing the largest share of tax burden in the country. These taxpayers pay an average tax rate of around 17%. Kiplinger Immigrants generated about $1.7T in economic activity in 2023 and paid roughly $652B in taxesThis economic output surpasses their 14.3% share of the US population, and their labor force participation rate of nearly 67% is higher than the approximately 62% rate for US-born workers. Council on Foreign Relations Most pensions are subject to federal income taxesThose taxes kick in once someone starts taking distributions from their pension. Whether a pension is subject to state income taxes depends on the state and other factors. Learn more about how pensions are taxed in this article. Smart Asset US immigrants pay billions of dollars in taxes each yearWhile immigrants who are authorized workers pay taxes just like anyone else, even unauthorized workers file tax returns. These unauthorized workers use individual taxpayer identification numbers. 1440 Daily Surprising costs associated with homeownership include taxes and roof maintenanceOwning a home includes not just expected costs such as a mortgage, homeowners insurance, and landscaping, but also less-obvious expenses like property taxes, repairing and maintaining one’s roof and HVAC system, and HOA fees. Investopedia Revocable trusts are typically subject to estate taxesIrrevocable trusts, however, are not. Both types help beneficiaries avoid probate, the lengthy court process that administers a person’s estate upon death. Kiplinger Trusts offer ways to reduce the taxes beneficiaries pay on assets in one’s estatePeople of different socioeconomic classes often decide to establish a trust to avoid certain taxes. When someone dies and leaves assets to beneficiaries in a will, those beneficiaries must pay specific taxes a trust's beneficiaries avoid. It all depends on the type of trust. Fidelity Read about what happened when one woman started filing income taxes againEven though she was 35 and had a 14-year-old son, Gabriela Gallegos's mother had claimed her as a dependent on her tax forms for roughly a decade. After that particularly tumultuous ten-year span of Gallegos's life came to a close, she decided to file income taxes again. The New Yorker In addition to collecting taxes, issuing tax refunds, and performing audits, the IRS is tasked with enforcing the laws listed in the Internal Revenue CodeThe Internal Revenue Code is also known as Title 26 of the US Code. It was enacted in 1925 and outlines income, estate, sales, payroll, and excise tax laws. Investopedia Certain home renovations, such as installing an in-ground pool, could increase your property taxesSignificant home improvement projects like adding another bathroom or an addition might raise your tax bill if they significantly increase the value of your home. The amount your tax bill could increase by depends on how tax assessment procedures work in the home’s location, as they vary by locality. Lifehacker What it's like to do your own taxes for the first timeMost Americans across the country have one thing in common: They hate doing their taxes. Many use an accountant or an online service like TurboTax to avoid doing taxes themselves. In this video, two journalists decide to do their taxes on their own for the first time. Business Insider Annuitants have to pay income taxes on the annuity payments they receive, unless their annuities are folded into a Roth IRAIn most other cases, annuities grow tax-deferred until annuitants start to receive payments. Those payments are then taxed as regular income. Nonqualified annuities, which are bought with after-tax dollars, have different rules. The Guaranteed Retirement Guy - John Stevenson How income taxes evolved from a funding tool for war into a crucial revenue source for the federal government Americans have long resisted income taxes. So, how did they become permanent? This overview explains how wartime funding needs, constitutional changes, and economic shifts gave rise to the modern tax system, from the Civil War to the payroll withholding rules we follow today. 1440 Opposition to British taxes, regulation of trade was key to American independenceThe economic situation in the colonies formed the backbone of the central events of the Revolution. British war debts caused it to lay the first direct taxes on colonists, cease their westward expansion claims, and adhere to stringent trade regulations, leading to backlash and eventual separation. Economic History Association A group of billionaires and millionaires wants to pay more taxesHundreds of billionaires and millionaires have signed a letter called “Proud to Pay More,” in which they ask world leaders to tax the wealthiest individuals more than they currently do. The group, which includes Disney heir Abigail Disney and Valerie Rockefeller, re-upped their call at the World Economic Forum in Davos this year. Learn about the “Proud to Pay More” letter in this article. CNBC A guide to gig-worker taxes and the new Venmo ruleTax laws are catching up to modern freelancers. Starting with income made in 2024, gig workers will have to report the earnings they receive via apps like Venmo and PayPal differently. The main change: workers will have to detail all app earnings above $5,000 (previously, it was $20,000), and that’ll eventually drop to $600. This guide explains what that’ll mean and answers common questions about the new rule. The Associated Press Read about a dating simulation game that helps prepare your income taxesFor the 2022 tax year, prank-playing creative studio MSCHF created a dating simulation game that helped taxpayers prepare their income taxes. In "Tax Heaven 3000," players interact with anime love interest Iris (it's like IRS), and run through a series of questions that complete their taxes. Iris also warns the player to stay away from tax-preparation companies like TurboTax. TechCrunch See how the income taxes in the US compare to other countries The US's highest marginal income tax rate is 37%. That rate is compared to other countries' both in a map and accompanying chart. Denmark has the highest rate at nearly 56%, while a handful of countries don't use marginal taxes at all. In the Middle East, many countries count on oil and gas to finance their governments. Visual Capitalist Learn how tax credits are applied to income taxesTax credits are directly subtracted from the amount of money taxpayers owe on their annual income. Unlike tax deductions, credits reduce the owed amount while deductions reduce how much income is taxable. There are different types of tax credits that are either fully or partially paid out. NerdWallet Individual income taxes are the federal government's primary revenue source, see a tracker that breaks down where the rest of the budget comes fromThe US government historically makes nearly half of its total revenue last year from individual income taxes. But the US makes also makes money from a variety of other sources, including Medicare taxes and corporate income taxes. However, the federal government has run a deficit since 2001—reaching a peak of $3.13T in 2020. U.S. Department of the Treasury A 1993 deal with the government exempts British Royals from paying inheritance taxesWhen Queen Elizabeth II died, King Charles didn't have to pay any inheritance taxes on the money he received from his mother. That's because of a unique deal the royals made with the UK government in the 1990s, in an effort to preserve the assets of the royal family that are synonymous with the institution. NPR Half of the richest people in the US are finding ways around death taxesOne of the main purposes of the federal estate tax is to crack down on generational wealth, so wealth isn't concentrated among a select few. However, the ultra-rich have found ways around paying these taxes. This ProPublica article investigates the practices used by half of the 100 richest people in the US to avoid death taxes. ProPublica Certain trusts can bypass estate taxes—but the terms can't be changedPutting money and other financial assets in an irrevocable trust is one way to avoid estate taxes. There are some cons to this trust, like the fact that you can't change the terms of the trust or assets in the trust after they're set. But a big pro is that any financial assets in an irrevocable trust aren't considered part of your estate, meaning they aren't subject to death taxes. SmartAsset Gifting money is one way to avoid death taxesGifting money while you're alive is one way people avoid estate and inheritance taxes. There is a yearly cap on how much you can give to a person before that money is taxed—but there isn't a cap on how many people you can give money to in a year. SmartAsset Only 5 states have inheritance taxesUnlike estate taxes, inheritance taxes paid by the beneficiary of the estate (the person who inherits the deceased person's financial assets). The federal government doesn't levy an inheritance tax, but five states do. They all have varying tax rates and rules. NerdWallet More than 15 states have estate or inheritance taxes—but Maryland is the only state with bothEighteen states, and Washington, DC, have estate or inheritance taxes in place. Tax rates and thresholds vary per state, but most are less than the federal estate tax rate and threshold. This means an estate doesn't have to be as lucrative to be subjected to the taxes. Kiplinger Estate taxes are paid out of the estate, while inheritance taxes are paid by beneficiariesWhen a person dies, any estate taxes owed are paid out of their finances before being transferred to their beneficiaries—unlike inheritance taxes that are paid by the beneficiaries themselves. In addition to a federal estate tax, 12 states and the District of Columbia have a state estate tax with varying rates. CNBC Death taxes have helped fund wars since the 1860sDeath taxes date back to 700 BCE and were used in Ancient Rome and Ancient Egypt. In the US, they've been used to finance wars since the Civil War, and have been levied on both the estate and beneficiary. The estate tax created during WWI to help finance war efforts is still in effect today. HowStuffWorks The debate over estate taxes centers on wealth inequalitySince the modern federal estate tax was implemented, people have felt strongly about whether or not to keep it. Much of the debate boils down to equality: Proponents say the tax creates better income equality between the rich and poor, while opponents say it's an inequitable tax only placed on the wealthy. Brookings Death taxes are placed on a deceased person's estateDeath taxes can include liquid cash, property, stocks, or other financial assets they owned. There are two main types of death taxes in the US: the estate tax and inheritance tax. Death taxes are levied at the federal and state level, but are targeted towards the rich. Investopedia The 'playing card' and 'blueberry' taxes are among the strangest around the worldIn Canada, companies making children’s breakfast cereals are granted a tax exemption if their cereal boxes contain free toys. While the exemption is limited to toys that are not “beer, liquor, or wine,” the cereal tax is far from the world's most eccentric tax. Intuit Capital gains taxes were first levied in the US in 1913However, up until 1921, they were treated the same as ordinary income. Ever since then, rates have swung up and down. Wolters Kluwer The 16th Amendment paved the way for capital gains taxesRatified in 1913, the 16th Amendment paved the way for a far-reaching federal income tax and supercharged the country’s coffers. Before then, the US depended on import tariffs and so-called consumption taxes to raise revenue. National Constitution Center Traditional IRAs are tax-deferred—meaning you’ll pay taxes when you withdraw funds during retirement, rather than before you invest in the IRAYou can typically deduct traditional IRA contributions from your taxes. To invest in a Roth IRA, on the other hand, you must contribute money that has already been taxed. Business Insider Mutual funds and taxesWith mutual funds, you can expect a similar tax experience to that of bonds and stocks, although there are a few key differences. Look out for potential taxes on any capital gains or dividend earnings. The Wall Street Journal 80% of Americans are bothered that some wealthy people don't pay their fair share of taxesThat's according to 2021 data from Pew Research Center. While most people are taxed on their income, many people in America's 1% make money off of their investments instead. Vox What America's 1% pays in taxes, by stateIn the US, the top 1% of earners contribute 45% of all personal income taxes collected nationwide. But not all states are created equal when it comes to income tax. Some states are more dependent on the 1% than others for tax revenue. SmartAsset recently examined IRS tax return data to determine exactly how much the top 1% of earners in each state paid in taxes. Find your state here. SmartAsset Since 1913, Americans have paid income taxes at varying ratesIn the 2020s, the top marginal tax rate has floated around 37%, relatively lower than previous eras. Some have called for boosting the rate significantly to tax the highest earners. Statista Visualizing US state taxes in seven chartsEver wondered how your state’s tax system compares to others? Here’s an overview of the US state tax system based on seven visualizations. HowMuch.net 💵It cost the IRS $0.36 to collect $100 in 2024It costs the IRS a significant amount of money to do part of its job—collecting money. For instance, the Internal Revenue Service spent $16.1B to collect $4.7T in taxes in 2023. USAFacts Cat food, death, and heavy machinery: Learn about loopholes in the American tax codeTax avoidance isn't the same as tax evasion. The tax code is full of legal loopholes accountants can use to lighten their clients' tax burden. For instance, large estates can be counted as farms and some cars count as heavy machinery. NPR Understanding the low corporate tax rate in the USCorporate taxes, which make up roughly a third of the federal government's revenue, have been calculated using a flat 21% rate since the Tax Cuts & Jobs Act of 2017. The current rate is considered low both by historic standards (it averaged over 50% in the 1950s and 1960s) and compared to other countries. Peter G. Peterson Foundation Read why some states are considering imposing a flat tax rate that isn't adjusted by incomeWisconsin was the first US state to impose a state income tax, close in time to when the federal income tax went into effect. Many states followed suit, but nine states to this day still don't levy wage-related taxes. Tax Foundation The US officially adopted an income tax in 1913The US first levied income taxes during the Civil War, but modern income taxes became an American fixture in 1913. Two years earlier, Congress passed the 16th Amendment to give the government the right to tax individuals' and businesses' income. The US still technically levies the same federal income tax now as it did then—though it's evolved. Investopedia Estate tax opponents coined the term 'death tax' to sway public opinionEven though the term death tax has been used for centuries, opponents of the federal estate tax started utilizing the term in the 1940s to try and sway public opinion. Since the modern federal estate tax was first established in 1916, opponents have unsuccessfully tried to get it repealed. NPR JP Morgan Jr. once angered the nation with his zero-dollar tax billIn the aftermath of the Great Depression, Congress learned that Morgan and his banking partners had avoided paying any federal income tax in 1931 and 1932. By claiming their losses in the stock market, they seemingly erased what they owed. Tax Notes ABBA wore outlandish costumes on stage for tax reasonsSweden's beloved musical group ABBA wore outrageous costumes designed to take advantage of a tax break for work uniforms. The law stated that people could deduct expenses for work clothing, as long as it couldn't be worn for other purposes. Yahoo Finance The average salary for full-time gig workers is roughly $60K a year in the USHigh-earners can make more than six figures, while close to 15% make less than the federal minimum hour wage. Most gig workers in the United States still have to file a tax return every year. Internal Revenue Service

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