Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?
This is your opportunity to ask questions. No question too simple or too silly.
Culture war topics are accepted, and proposals for a better intro post are appreciated.
Jump in the discussion.
No email address required.
Notes -
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).
Every W2 employee has tax withholding which is usually pretty close to their actual owed taxes. The only way to avoid this is to be a contractor, in which case you will need to file payments of your estimated taxes as the year goes by.
You do engage with the income tax system annually, but that is to calculate your final actual taxes owed for the year. If that is less than you paid in via withholding, then you get a refund (this is the normal case), and if it is more, then you have to write a check for the remainder. If it is ever or routinely substantially more, perhaps due to side business activities or investments, then you may be required to make periodic payments of your estimated annual taxes before the end of the year. The IRS very much wants to be giving people a small but positive refund every year, and many people even consider it to be a "bonus" and plan around it.
Withholding is most definitely mandatory, and the IRS will be very unhappy with you if you try to dodge it or intentionally have less withheld than your expected taxes. I'm not sure where you got the idea that it isn't, but it's not true.
Universal Federal withholding was established in the US back in WWII, as a "temporary" measure to get the Feds money needed for the war effort sooner, and never removed. Some fiscal conservatives have advocated for removing it to actually force most Americans to write large checks every year, and thus save for them and make it more painfully obvious exactly how much they are paying. This is most likely a non-starter given how bad most people are at saving for such a high-magnitude future expense and how much effort would be needed to chase down everybody who accidentally or intentionally failed to save enough or otherwise dragged their feet. It's a pretty extreme position that nobody anywhere near actual power is prepared to touch. Pretty much everyone has since gotten in on the act of getting other entities than individuals to actually write the checks for tax payments, as it's much easier to coerce businesses than individuals.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link