MINNEAPOLIS (WCCO) – If you haven’t done so already, you might be gathering up all the paperwork you’ll need to send your money off to Uncle Sam.
This has prompted many of you to send in your Good Questions about taxes. Bill from Golden Valley asks: How much do we pay in taxes?
The average American pays an annual tax bill of just under $15,000. That number includes all local, state and federal taxes. But averages can be misleading when it comes to taxes because the range varies so widely.
“Even if two people have the same income, their taxes could be very different depending on what kind of tax planning they did or what deductions they did,” University of St. Thomas finance professor John Spry said.
Spry helped us break down the numbers from the Congressional Budget Office and Minnesota Department of Revenue.
Let’s start with federal income tax and divide the country, by income level, into fifths.
Federal Income Tax
Lowest 20 percent: -8%
Second 20 percent: -1%
Middle 20 percent: 2%
Fourth 20 percent: 6%
Highest 20 percent: 14%
Here, you see the bottom two fifths – or 40 percent – of earners don’t pay any federal income tax, but rather get a credit.
“In part, that’s because there’s an earned income tax credit, so if you have below average income and a couple of kids, the earned income tax credit rewards you for working more,” said Spry.
But, even if you don’t pay any federal income tax, most people still pay some sort of federal taxes in the form of payroll (Social Security, Medicare), corporate income taxes and federal excise taxes on things like alcohol.
All Federal Taxes
Lowest 20 percent: 3%
Second 20 percent: 8%
Middle 20 percent: 12%
Fourth 20 percent: 16%
Highest 20 percent: 25%
By adding in state and local taxes, which include sales tax, property taxes and hidden business taxes, you get a better sense of a person’s total tax bill.
Federal, State & Local Taxes
Lowest 20 percent: 13%
Second 20 percent: 20%
Middle 20 percent: 24%
Fourth 20 percent: 29%
Highest 20 percent: 35%
Highest 1 percent: 43%