Most People Have to Pay These Five Types of Taxes
- Income Taxes
- Federal Insurance Contributions Act Taxes
- Self-employment Taxes
- Property Taxes
- Sales Taxes
When a person receives a job offer with a salary, the amount of money might sound great until the candidate thinks about the type of taxes they will have to pay on their income and in other parts of life. Unfortunately, taxes are a fact of life, and everyone pays in some way or another. Here are five of the most common types of taxes in the United States.
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1. Income Taxes
Local, state, and federal income taxes apply to nearly all workers in the United States. Federal taxes have a marginal rate and seven tiers based on a person’s or couple’s income. States may institute a similar tiered system or a flat-rate tax. Only seven states do not have a state income tax. Some cities institute an additional income tax.
2. Federal Insurance Contributions Act Taxes
Federal Insurance Contributions Act (FICA) taxes are Medicare and Social Security taxes. They are about 6.2 percent of gross earnings up to $110,000 of earned income for Social Security and 1.45 percent for Medicare. The tax rates for income earned after $110,001 are lower.
3. Self-employment Taxes
According to The Balance Small Business, self-employment taxes are another common type of taxes paid by Americans. Because so many people work in the gig economy, a greater proportion of people is responsible for paying their own FICA and employer share of Medicare taxes. The current self-employment tax rates are 12.4 percent or more for Social Security and 2.9 percent for Medicare. The individual has to pay their own share plus the employer’s share, meaning that self-employed individuals pay twice as much for this tax as people employed by a company or someone else.
4. Property Taxes
A property tax is a type of ad valorem tax. This means that the amount of tax paid is based on the value of the taxable good or service. Property taxes are enacted by local authorities on residential and commercial properties. In some places, a homestead exemption reduces the property tax rate. This means that if it is a single-family home owned and occupied by the same person, the property tax rate is lower. Property values change, and authorities re-evaluate the value every two to five years.
5. Sales Taxes
A sales tax is a type of consumption tax. An individual pays them at the point of sale. Sales tax may be invoked by local or state authorities. It can be applied to goods, services, or both. Some places have different sales tax rates on different items. For example, alcohol and tobacco products are often taxed at a higher rate than non-alcoholic beverages. The amount of sales tax paid depends on the value of the purchase. Cities, counties or states can set up sales taxes. For example, in Columbus, Ohio, purchases of most goods or services result in a 1.75 percent sales tax to Franklin County and a 5.75 percent sales tax to the State of Ohio, for a total of 7.5 percent sales tax.
Each of these types of taxes will be paid by most people at some point in their lives. Some taxes affect certain people more than others, with consumption taxes like gas taxes costing low-income people a higher proportion of their income compared to high-income individuals. Knowing about the type of taxes a person is likely to have to pay helps one understand where their money goes and what is done with it.