Taxation in the United States

(Federal payroll?) taxes in the United States are primarily collected by employers, for the U.S. Internal Revenue Service.

The income tax forms the bulk of taxes collected by the U.S. government. Depending on individual income, it ranges from nothing to 35% of one's income. It is assessed on most publicly held corporations, as well, so that the dividends paid to stockholders are subject to a double tax. The U.S. government rewards behavior by reducing taxes on it. The most famous reduction in taxes is that income used to pay mortgage interest on a personal home is exempted from taxes. An additional $2,000/year of income per person may be placed in an individual retirement account, and this may be deducted from taxable income.

The next largest tax is social security. This tax is 6.2% of an employees' income by the employer, and 6.2% by the employee. Note that the employer always must budget in such a way that the 6.2% paid by the employer could have been paid to the employee, thus the effect of this tax is a second income tax of 12.4%. This tax is paid only on the employee's first $76,200 of income.

There is a medicare tax, 1.2% of the employee's income paid by the employer, and 1.2% by the employee. This is used to pay for medical care for qualifying persons, usually people over the age of 65.

Dividend and interest income is not subject to social security or medicare taxes.

The U.S. has an income tax to support unemployment insurance. This is 1.2% of the first $7,000, but coordinated with state unemployment agencies and taxes in such a way that most employees are not double taxed in states that have unemployment insurance.

The U.S. also has a tax to pay for retraining of displaced workers, but it is only 0.1% of the first $7,000 of income, and it is assessed only on employers.

Employers pay these taxes directly to federal banks, which use it to retire short-term treasury debt. For this reason, most employers maintain an account at a federal bank.

Most states also tax. Typically there is a tax on land, and there may be additional income taxes and excise or sales taxes. Cities and counties may levy additional taxes, for instance to improve parks or schools. Florida is one example of a state without an income tax.

For example, California has additional taxes that raise total taxes higher than 51% of income for many workers.

/Talk