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On This Page, You Will Learn To:
Identify the main types of taxes you pay in the U.S
Understand why taxes are important and how they support your community
Prepare to file your taxes accurately and on time
Read your paycheck and recognize common deductions
Types of Taxes
Types of Taxes
Sales Tax
Sales Tax
A tax on goods and some services you buy.
State and local governments (cities/counties) set the tax.
You pay it (in addition to the cost of the product) when you buy something, and the business then sends that money to the government.
Examples: You buy a $100 jacket in a state with 7% sales tax, so you pay a total of $107 for the jacket.
State Taxes
State Taxes
Taxes collected by state governments.
State income tax is the most common state tax.
There are also state taxes on some goods, such as gas, alcohol, and cigarettes.
State taxes are used to fund things like schools, roads, and public safety.
Example: You earn $40,000 in a state with a 5% income tax, meaning about $2,000 goes to the state in State tax.
Federal Taxes
Federal Taxes
Taxes collected by the U.S. Federal government
Types include: Federal income tax (depending on income level; if you make more money, you have a higher tax rate); Payroll taxes (used for Social Security, Medicare, and other social services; this is normally split between employee and employer); and Federal excise taxes (for gas, alcohol, air travel, etc.)
These taxes are used to fund national programs like defense, social security, Medicare, and infrastructure (like roads).
Example: Your paycheck includes federal income tax and payroll tax deductions before you're paid.
Filing Your Taxes
Filing Your Taxes
Every year, in April, people living in the United States must submit a tax return (a report that tells the government how much money they earned and how much tax they have already paid). If you paid too much in taxes, compared to how much money you made, you get a refund (money back). If you paid too little, you may owe the government more money. You can file your taxes between January and April once you receive the necessary documents.
Common Tax Forms
Common Tax Forms
W-2: shows how much you earned and how much tax your employer already sent to the government.
1040: the main form used to file your taxes.
W-4: the form you fill out when you start a new job. This form is used to determine how much tax is taken out of each paycheck.
Filing Options
Filing Options
File online through IRS-approved websites.
Ask for help from a VITA (Volunteer Income Tax Assistance) center.
Some community centers or libraries also offer help in multiple languages.
Example:
Example:
Omar, who moved from Somalia, worked at a warehouse and got his W-2 in January. With help from a VITA (Volunteer Income Tax Assistance) volunteer, he filed online and received a refund in two weeks.
Common Tax Credits and Refunds
Common Tax Credits and Refunds
Tax credits can lower the amount of money you owe or even increase your refund (money you get back from the government). Credits are often available to families, students, and workers with low or moderate income.
Common Credits
Common Credits
Earned Income Tax Credit (EITC): Helps low- and moderate-income workers.
Child Tax Credit (CTC): Helps families with children under age 17.
Education Credits: Help pay for school or work training expenses.
Example:
Example:
Mina, a single mother from the Democratic Republic of Congo, filed her taxes with the help of a volunteer. She qualified for both the Child Tax Credit and Earned Income Credit, which gave her a larger refund!
Understanding Your Paystub
Understanding Your Paystub
You can always check how much money is being withheld (for tax purposes) by looking at your paystub, which you will receive from your employer every time you get paid. It is important to check this so you can plan your budget.
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