What’s The Difference Between Federal Taxes And State Taxes?
Although people that work for businesses (employees), and people who work for themselves (self-employed people), both pay federal and state taxes, a lot of people have questions about what the difference between them is.
In this article, we’re going to be explaining how federal taxes and state taxes differ. We’ll be outlining everything for you in an easy to understand manner, below:
State And Federal Taxes – Both Are Required For Workers To Pay, But How Do They Differ?
State taxes are different than federal taxes in the following ways. While federal taxes are automatically deducted from employee paychecks in a marginal way, based on the amount earned each year, state taxes are administered and deducted by the state Department of Revenue.
State taxes paid can also be controlled by the department of revenue, department of taxation, state comptroller, or state treasurer. Some states have a flat tax rate on state income taxes, such as Pennsylvania.
Further, there are currently 7 states that don’t enforce a state tax at all. These are Texas, South Dakota, Wyoming, Alaska, Nevada, Florida, and Washington.
The amount people pay for state taxes is much less than they pay for federal taxes. In Illinois, for example, 5-7% of your earned income goes towards state taxes.
Federal taxes represent the lion’s share of what people pay in taxes each year. The amount of taxation required to keep the country running smoothly and provide all the necessary raw materials and resources the United States needs to stay productive is always subject to adjustment.
According to the 2014 tax system, federal taxes work according to a marginal tax diagram. The more you make per year, the more you pay in taxes. The less you earn, the less you pay. The average employee taxpayer should expect to pay between 10%-33% of their total earnings each year in federal taxes.
Federal taxes are also automatically deducted from employee paychecks, in accordance with the business being officially registered, listed, and legally allowed to conduct business within the United States.
Property Taxes, Sales Taxes, Import Taxes, Estate Taxes, And Gift Taxes
There’s more to the tax system than just federal and state income tax. Contributions to the United States system of tax revenue reaches beyond that and includes a wide variety of different tax inclusions.
Property Taxes – Depending on where you live, property taxes in the United States can be extremely high ($2,500+ per year) to extremely low ($500 per year). It all depends on your location and what city, county, and state you choose to live.
Estate Taxes – While estate taxes generally aren’t an issue for people living in the United States, if the total value of your estate comes to above 5.34 million dollars, you’ll have to pay an estate tax to leave such an estate to someone in your will.
Sales Tax – Sales taxes generate a large portion of revenue for state funding purposes. In Illinois, for example, the rate of income tax is 8.16%. Other states have very similar rates, and considering that all Americans buy food, clothing, fuel, and everything else within the United States, this is a huge overall contribution to the resources of the United States.
Gift Taxes – Taxes on gifts generally aren’t an issue for the great majority of Americans. You can give away a total of $5.34 million in your lifetime before any gift taxes are due. Recipients of gifts are of course exempt from any taxation.
The annual exclusion amount rule is this: You can give away up to $14,000 to any individual person, and give as many people as you want $14,000 as long as their different people, and not be subject to gift taxes.
However, if you bestow over $14,000 to a single person within a single calendar year, you’d be responsible for paying a small amount of gift tax on that individual gift.
Here are some great sites for you to check out regarding taxes: