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Federal Income Taxes

Federal Income Taxes

Federal Income Taxes are a percentage of an individual’s or business’s income paid to the government and used to fund public goods and services.


Taxable Income


Federal income taxes are charged only on taxable income. This includes earned income (the money you get in exchange for work) and unearned income (money you didn’t explicitly do something at the time to get, such as investment gains or interest). Things that don’t count as taxable income include child support payments, life insurance payouts, and scholarships. For more information and specifics on what qualifies, check out the IRS’s write-up on the topic.


Paying Federal Income Taxes


All federal income taxes must be paid by tax day—on or near April 15th—every year. If you work for an employer, they’ll withhold part of each paycheck to help account for these taxes.


If you’re self-employed and made over $400 in net income after expenses, you’ll need to take care of federal income tax yourself. To do this, you’ll make quarterly payments to the IRS. These payments are based on what you think you’ll make during the year. They also need to account for your share of Social Security and Medicare, since you don’t have an employer to take those out or contribute to it for you.


Come tax time, you’ll submit your return, which contains records of your income, how much you owe in taxes, and how much federal income tax you paid during the year. If the total owed is above what you’ve paid, you’ll have to cover the difference. And if it’s less, you’ll get a refund.


Of course, more things than just federal income taxes factor into your overall tax situation (things like deductions, credits, status, and dependents will make a big difference), so whether you get a refund or have to pay isn’t as straightforward as a simple subtraction based on percentages.


How Tax Money is Spent


Tax money is spent based on the budget set by Congress and the president. In general, the funds go to support various programs, goods, and services throughout the country. The four areas that take the largest chunks are:


  1. Health programs like Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP)

  2. Social Security

  3. Aid and safety net programs like unemployment insurance and food stamps

  4. National defense and security


If the money from taxes won’t cover everything that needs to be funded, Congress will have to adjust the budget, find money elsewhere, or raise taxes. Voting in local and state elections is the best way to make your personal priorities known, whether those priorities relate to how high taxes are or what the money is going toward.


Overall, while it may be frustrating to feel like you’re losing the money you’ve earned, the federal income tax helps fund important goods and services that benefit you and others throughout the country.


While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

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