Understanding Tax Categories in the United States

The US tax framework is intricate, but grasping its basics can aid in effective financial planning. Taxes are deducted at different times, often directly from paychecks. Typically, employees see three main taxes on their pay stubs: federal income tax, payroll tax, and state income tax. Additional taxes are levied at points of purchase, especially on items like fuel and cigarettes. State and local governments also impose sales taxes on various goods and services.

Income Taxes
The federal, state, and local governments all have authority to impose income taxes. The federal tax rate varies based on income level and filing status, featuring seven brackets. Low to middle-income workers may qualify for tax credits such as the earned income tax credit, and tax rates can differ significantly across brackets.
Sales Taxes
Sales tax is a consumption tax on goods and services purchased, applied at the point of sale, collected by retailers, and remitted to the government. Businesses with physical presence, employees, or affiliates might be liable for sales taxes based on local laws.
Excise Taxes
Excise taxes are indirect taxes on specific goods, paid initially by manufacturers but passed on to consumers through higher prices. These also include penalties on ineligible transactions within retirement accounts.
Property Taxes
Property tax is assessed on real estate and other properties like vehicles, based on their market value. Often, these taxes can be deducted if used for public benefit rather than private gains.
Payroll Taxes
Payroll taxes are withheld from employee wages by employers, covering contributions for Social Security, Medicare, and other programs, collected at federal and state levels.