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How do income taxes work in the US? Let's say I am offered a salary of $100k, what's the rule of thumb to estimate my take-home pay?
For comparison, here's how it's done in Russia. Let's say I am offered 9M rubles per year. This amount includes my income tax that will be deducted by the employer and excludes my social security contributions that will be paid by the employer on top of 10M. There are just two tax brackets: 13% on the first 5M, 15% on the rest. So my take-home pay is 50.87+40.85=7.75M rubles annually.
From what I know about various EU countries, it's more or less the same, except the number of tax brackets is higher and there are additional concerns like having a (non-)working partner and/or underage children that affect the tax rate, but your income taxes are done by the employer.
In the US, unlike almost every other developed country, taxes aren’t (edit: universally) deducted by employers. Instead, employees are responsible for filing and paying their taxes. In a way, I don’t think this is a bad thing, it’s probably responsible for moderately more conservative American views on taxation (even if these aren’t reflected in policy).
In addition to federal income taxes (which range from 10% to 37%), there are also state and even municipal income taxes. Some states like Texas prefer to tax property or sales/goods instead of income. Some tax both property and income, or property, income and sales to varying amounts. At various times there have been both state and federal deductions for taxes paid to other jurisdictions. There was a big fight in the last (and start of this) administration about whether and to what extent state and local taxes could be deducted from federal taxes, which benefits high tax (blue) states at the expense of low tax (often red) ones.
What this means is that in some parts of the US - most notably NYC - high earners deal with tax rates that are actually very comparable to and sometimes even exceed those of most Western European ‘social democracies’ (approx 50% marginal rates). The US isn’t a ‘low tax’ society; in ‘lower tax’ states property taxes are often extremely high by global standards for example. It’s just a very rich society, even compared to Western Europe.
EDIT: Also, the US taxes globally. These taxes are deducted from local taxes where the US has a tax treaty (almost everywhere), so in the UK I don’t pay any American income taxes, but if I moved to, say, Dubai or Hong Kong I’d be liable for the full federal rate minus whatever income tax I paid locally. Anyone who makes more than $100,000 a year has to file, and even those who make less have to declare that they do so, provide their bank accounts and so on (of course the US government/IRS already has them, they force all global banks to report the financial data of any US citizen (which makes opening accounts abroad extremely painful), they just want to try to catch you out).
How does it work in practice, though?
Since I'm a sole proprietor, I have to pay my own taxes, but it's a relatively simple deal - at the start of the year my accountant asks me what I assume my next year's income will be and after I make an estimate (typically estimating that it's somewhat more than in the past year), she sends me bills to pay the next year's presumed tax sum in six batches, ie. a batch every two months. Then the estimate gets specified throughout the year on the basis of my actual work, changes to taxation and, say, what deductions I'm getting, so this year I've had to pay a lot of taxes towads the end of the year. Then, when the tax office finalizes the previous year's taxation, if I've paid more than the actual final sum calculated on the basis of the year's actual income and deductions I get a rebate and if I've paid less I'll pay back taxes.
Simple enough, and the whole process means just a few added extra hours the accountant bills me per year, in addition to the usual processing of bills and invoices. In addition to national taxes there are local taxes, but those are all handled as a part of the same process, ie. the local tax rate (along with the assorted deductions) is just slapped on top of the national tax rate and the tax office processes all of it as a part of the same process.
However, every time the American taxation system is discussed, I get the feeling that even a normal worker has to do something infinitely more comples than this. Is it the state/local taxes and their effects? (Of course a normie worker won't need an accountant, but my understanding is that it would be possible for me to do it all myself without that much extra work if I was intent on saving money.)
The normal US worker will do very little.
Their employer will give them a small half sheet of paper called a W2. If this is their only income, they can file a 1040EZ which takes 15 minutes or so. If they have investment income, they will typically use software like TurboTax to file a 1040. This might add a couple hours depending on the complexity of the return
In most states, they will also have to file with the state, so add 50% to the time.
If you own a business, it's a nightmare. This is no different in Europe I assume.
Again, as a sole proprietor, my taxes and general business bureaucracy are quite simple. I pay my accountant on average maybe 100 € / month, a trifle compared to other costs.
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