What Percent of Earnings Is Spent on Taxes?

Posted on February 3, 2012. Filed under: Indian Taxes |

Social Security and Medicare

  • Anyone who earns money pays Social Security tax and Medicare. If you work for another person, you pay half and your employer pays half. Those who are self-employed pay the entire amount. For every $100 you make, your employer withholds $6.20 — up to $106,800 in earnings in 2010 — for Social Security and $1.45 for Medicare tax. Your employer has to pay the same amount on your behalf. Self-employed individuals have to pay twice that amount because they’re both employee and employer. In 2011, the employee rate for Social Security drops for one year by $2 per $100.

Federal Tax

  • With federal taxation, the Internal Revenue Service brackets the percentage you pay. That means you pay a specific amount of tax on a set dollar amount, but as your income increases, the tax percentage increases on the amounts you earn above that number. Single people pay 10 percent on earnings of $8,375 and below and 15 percent on earnings above that. The percentage increases until it reaches 35 percent on income over $373,650. The breaks where the percentage increases vary by your tax filing status. You pay tax on all income, including investment income, gambling winnings and pensions.
    Exemptions and Deductions
  • When you calculate your taxes, you reduce your income by your exemptions and deductions. The people you support for more than half the year can qualify as exemptions worth a $3,650 deduction each — and in some cases the deduction is larger if you’re older than 65 or blind. Deductions are expenditures that reduce your taxable income. They can be a flat amount based on your filing status, or you can itemize them if you have more deductions than the average person does.

State Tax and Local Tax

  • Most states use the federal adjusted gross income — income before the exemptions and deductions — to calculate the state tax. Some states have no state income tax, such as Nevada. Some states tier the tax percentages like the federal tax system does, with the highest rate over 10 percent. Other states, such as Indiana, have a flat rate. The percentage you pay varies by the state in which you live. In some cases, you also pay local income tax for your city or county.

Sales Tax

  • If you purchase anything during the year, you’ll pay sales tax in most cases. Some states don’t charge sales tax on food or prescription drugs. California has the highest sales tax at 8.25 percent. Several states have no sales tax.

Other Taxes

  • If you purchase a gallon of gasoline, the actual cost of the gas is much lower than what you pay. The rest is tax. You then pay sales tax on the total amount, which means you’re paying tax on tax. If you own a home, you pay property taxes. If you stay at a hotel, there’s a hotel tax tagged on to the bill. If you use a phone or pay for utilities, those services are also taxed. You pay a tax every year when you update your vehicle’s registration. Almost every time you purchase an item, the manufacturer and retailer include the cost of the tax.

Read more: What Percent of Earnings Is Spent on Taxes? | eHow.com http://www.ehow.com/info_8196810_percent-earnings-spent-taxes.html#ixzz1lIAxDPqh

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