When most of us think of taxes, we actually think of the federal income taxes that we pay. While these taxes are the most visible of taxes, it’s also worth considering the other taxes that we all pay.
Even though a large portion of the population ends up not paying federal income taxes, particularly those who receive tax returns as a result of deductions and credits (like the EITC), there are other taxes that they likely pay. Indeed, we all pay taxes to some degree. Some of the other taxes that you might pay include :
- State income taxes: Many states have their own income taxes. These are paid on top of what you pay to the federal government. Only Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t collect state income taxes at all, while New Hampshire and Tennessee only collect tax on income from interest and dividends.
- Sales taxes: Sales taxes are collected when you make certain purchases. These taxes are determined at the state and local levels. Many states have a statewide sales tax, and some counties and cities add their own taxes to what the state charges. There might even be different rates, with a lower sales tax being charged for grocery items.
- Gasoline taxes: Everyone pays gasoline taxes. When you purchase gas at the pump, you pay a federal tax, and a state tax. Each state tax sets its own rate, in addition to the tax levied by the federal government.
- Social Security and Medicaid (payroll taxes): These taxes are actually different from federal income taxes, even though they are taken out of your paycheck at the same time, and reported at the same time.
- Property taxes: Most areas charge property taxes when you own land and/or a home. In many cases, these taxes are assessed by someone in the county.
- Other taxes that you might have to pay include federal and state estate inheritance taxes if you receive assets as an inheritance, and your estate has to pay taxes on assets after you die. If you give a gift, and it exceeds the exemption amount, you pay taxes on the amount of the gift.
Even though there is a perception that a large portion of the population isn’t paying taxes, the truth is that most people do pay taxes, one way or the other. According to the Institute on Taxation and Economic Policy, the bottom fifth of taxpayers actually paid 12.3% of their incomes in state and local taxes, while those at the top pay 7.9% of their incomes in state and local taxes.
According to the Tax Policy Center, 61% of people who don’t pay federal income taxes actually pay payroll taxes. So, even though it seems as though you might not be paying taxes, you probably are paying something – even if it is just the gasoline taxes and maybe sales taxes. And, if you are working, chances are that payroll taxes are part of the equation.
In the end, we all pay taxes to one degree or another, whether we pay federal income taxes.