Category Archives: taxes

How Much of Your Income Goes to Pay Taxes?

Tax Man by Jon Tyson via Unsplash - https://unsplash.com/photos/nPncMJ3zEUY

Once again, American taxpayers are being asked to perform a grim annual ritual. Or else you'll be paid a visit by the dreaded tax man.

The grim ritual is the annual filing of federal income tax returns. And in all but nine states, they'll also have to file state income tax returns.

But that's nowhere near all the taxes that Americans have to pay. As an American, did you ever wonder how much of your income goes to pay all the taxes you pay? It's not just federal and state income taxes. That can include local income taxes, Social Security and Medicare (FICA) taxes, property taxes, utility taxes, sales taxes, excise taxes, etc.

What percentage of your income is going to pay all those taxes?

Answering that question is why we've built the following tool. It identifies the major taxes most Americans will encounter during the course of a year and can be used to estimate how much of your annual income is really sucked up by governments at every level you might encounter. If you're reading this article on a site that republishes our RSS news feed, please click here to access a working version of the tool! And if you're already here, you can get started by entering any numbers of interest into the tool or running the default scenario we've entered. Let's get to it!

Income Data
Input Data Values
Your Household Income
Income and Payroll Taxes
Federal
State
Local (County and/or City)
Social Security
Medicare
Property Taxes
State
County
City
School District
Utility Taxes
Water / Sewer / Stormwater
Electricity
Natural Gas
Telephone / Mobile
Cable / Internet
Solid Waste / Trash
Other Utility Taxes
Sales and Excise Taxes
State
County
City
Fuel
Other Sales and Excise Taxes

How Much of Your Income Goes to Pay Taxes?
Estimated Results Values
Total Taxes Paid
Your Effective Tax Rate

For the default example, we've set the annual income to be a little under the median household income for the United States as of December 2021, so it represents an income that half of American households make more than, and half of American households make less than.

For fun, we set our hypothetical median income earning household in Philadelphia, Pennsylvania, where residents are subjet to federal, state, and local income taxes. Since the city and county for Philadelphia is one and the same, we've only entered taxes paid at the county level.

We also set our median household up in a home that cost $304,000 in 2021, which happens to be the median sales price of a single family home in Philadelphia, adjusting the property taxes accordingly, including the city's school district taxes.

But wait, there's more! Our median income-earning household will pay water/sewer/stormwater, electricity, natural gas, telephone/mobile, cable/internet, solid waste/trash, and other utility taxes!.

Think that's all? Guess again! There are sales taxes to be paid too, for the state, county and/or city. There's also excise taxes like those for gasoline and others, which are paid by those who pay for alcohol, cigarettes, soda, parking, etc. There are so many we can't easily incorporate them into our tool and keep its user interface manageable, which is why we've had to add categories for "other" in a couple of spots!

Just for the record, we've omitted things like sales taxes for real estate and vehicles, mainly because they're usually not regular annual events for most households.

So how much of a median income earning household's income would be consumed by taxes if they lived in Philadelphia? Our tool conservatively estimates 37.3%.

How does your household compare to that? Would living somewhere else make a big difference? These are questions our tool can help you discover. Go ahead. Take it for a test drive. The Tax Man already has.

Image credit: Photo by Jon Tyson on Unsplash.

What’s the Substitute for Sugary Soft Drinks?

Coca-Cola Photo by Omar Elmokhtar Menazeli via Unsplash - https://unsplash.com/photos/6STZ9m3PUfE
Miller High Life Photo by Waz Lght via Unsplash - https://unsplash.com/photos/ifB8j7QoWe8

Imagine this scenario. Public health advocates campaign for your city to impose a tax on sugary beverages. They claim it will improve the public's health through fighting obesity by making soda and other soft drinks made with sugar more costly to buy, forcing budget-minded consumers to substitute much lower calorie containing beverages. Your city's politicians, always happy to get more tax revenue, go along with their scheme. How do you think consumers of sugary soft drinks in your city will respond?

If you answered they will drink more calorie-laden alcohol-based beverages, you're right!

The latest proof that consumers substitute beer and liquor for sugar-sweetened soft drinks comes to us from Seattle. In December 2017, the city imposed a unique $0.0175 per ounce tax on beverages containing calories from sugar, but not on beverages made with non-calorie-laden sweeteners. For example, consumers buying a two-liter bottle of Coca-Cola would pay an additional tax of $0.35 that consumers of the same size bottle of Diet Coke or Coke Zero would not.

At first glance, you might think consumers of Sugar-Sweetened Beverages (SSB) would choose to switch to the sugar-free versions of their previously preferred soft drink or to water to avoid having to pay so much more for it.

But that's not what happened according to a peer-reviewed study published in PLOS ONE, which found that the tax "induces substitution to alcoholic beverages". More specifically, the consumers preferred substitute wasn't sugar-free beverages. It was beer, whose sales rose by 7% relative to those of the demographically similar city of Portland, Oregon, which didn't impose a soda tax:

There was evidence of substitution to beer following the implementation of the Seattle SSB tax. Continued monitoring of potential unintended outcomes related to the implementation of SSB taxes is needed in future tax evaluations.

How many competent public health advocates do you suppose would push for new or expanded soda taxes knowing that real life consumers are more likely to shift to alcohol-based beverages with equivalent levels of calories instead of water or low-calorie sugar-free soft drinks? Not only do they miss any benefit from reducing calories consumed among the public, higher alcohol consumption comes with the "higher risk of motor accidents/deaths, liver cirrhosis, sexually transmitted diseases, crime and violence, and workplace accidents" to the public's health.

Then again, if you're a long-time reader of Political Calculations, you could have easily predicted that from our analysis of what happened to alcohol sales in Philadelphia after that city's soda tax went into effect.

Image credits: Coca-Cola Photo by Omar Elmokhtar Menazeli on Unsplash. Miller High Life Photo by Waz Lght on Unsplash.

References

Lisa M. Powell, Julien Leider. Impact of the Seattle Sweetened Beverage Tax on substitution to alcoholic beverages. PLOS ONE 18 January 2022. DOI: 10.1371/journal.pone.0262578.

Baylen Linnekin. Study: Seattle's Soda Tax Has Been Great for... Beer Sales? Reason. [Online Article]. 12 February 2022.

Previously on Political Calculations

How Much Do You Pay in Gas Taxes?

Gas Station in the Nevada Desert - Source: Suzanne Emily O'Connor via Unsplash - https://unsplash.com/photos/NHJV8rOPDXk

Do you have any idea how much money you're paying to the government each time you fill up your gas tank? We're not just talking about the federal government. State and local governments across the U.S. are also getting in on that action!

It's a question that's taken on more significance in recent weeks, with politicians up for re-election this year reacting to sharply inflating fuel prices by proposing a federal gas tax holiday. That could save you up to 18.4 cents a gallon, but how much would you save at the pump over the course of a full year?

We've built the following tool to help you estimate how much you'll pay in vehicle fuel taxes this year and to answer questions like that. To use it, update the fuel tax rates that apply for your state or local jurisdiction, update the gas mileage data for your specific vehicle of interest, then click the "Calculate" button to find out how much you're paying in gas taxes! [If you're accessing this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.]

Vehicle Data
Input Data Values
Miles Driven in One Year
Your Vehicles Average Fuel Mileage
Fuel Price and Tax Rates
Average Price per Gallon for Fuel
U.S. Federal Gasoline Excise Taxes and Fees (cents per gallon)
State Gasoline Excise Taxes and Fees (cents per gallon)
Local Gasoline Excise Taxes and Fees (cents per gallon)
Combined State and Local Sales Tax Rate, if applicable (%)

Annual Fuel Usage and Out-of-Pocket Cost
Estimated Results Values
Gallons of Fuel Purchased for Vehicle
Total Cost of Fuel
One Year's Worth of Fuel Taxes for Vehicle
Federal Gasoline Excise Taxes and Fees
State Gasoline Excise Taxes and Fees
Local Gasoline Excise Taxes and Fees
State and/or Local Sales Taxes
Total Fuel Taxes
Portion of What You Paid for Fuel That Went to Governments
Percentage of Fuel Cost

For the default data, we find that 20.7% of what was paid for fuel at the pump for this single vehicle went to the federal, state, and local government. $66.91 of that was for federal fuel taxes, which is a little under 4.8% of what was paid for fuel in the default example. The more that fuel prices rise, the smaller the benefit you might get from having the federal fuel tax suspended would be in terms of your annual fuel bill.

The default data in the tool is based on the applicable fuel excise taxes, sales taxes, and government-mandated fees that applied to fuel sales in Erie County in New York in January 2022. We've simplified the local sales tax calculation to make the math more generally applicable to other jurisdictions, so it won't perfectly match the more precise sales tax math that specifically applies in Erie County.

While these state and local taxes are high, they're not the worse in the U.S. For that scenario, replace the default data with California's fuel taxes and fees. For the numbers that would matter most to you, update the tool with the fuel tax data that applies for your state.

Image credit: Photo by Suzanne Emily O’Connor on Unsplash.

Your Paycheck in 2022

Berryman: Right of Way - Washington Evening Star, 15 March 1926, via Library of Congress

Welcome to 2022! With 2021 now receding in the rear view mirror, it's time to look forward to what your paycheck will look like this year after Uncle Sam's IRS agents prioritize your paying income withholding taxes to the federal government on the money you worked to earn.

As in 2021, we're starting with the assumption that a still significant percentage of Americans have not yet filed new W-4 tax witholding forms to take advantage of the simpler withholding rules that took effect in 2020. If that situation applies for you, our 2022 tool will accommodate your situation, but you will likely find the newer rules let you keep more of the money you earned from working. If you have updated your W-4 withholding form with your employer since 2019, that's the situation our tool is set up to handle by default, so you're set to go.

This year's tool is also set up to capture any big changes you may have made in your job. Is this the year that you'll crank up how much money you might invest in a pre-tax 401(k) retirement account at work? Does your employer offer health or dependent care pre-tax flexible spending accounts that you might use this year? What if you get a raise sometime during the year to cope with President Biden's inflation?

Our 2022 paycheck tool can help you find out how the answers to these questions can affect your paycheck and more! If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool. Otherwise, just start entering whatever numbers you want to consider for what your paychecks might look like in 2022.

Your Paycheck and Tax Withholding Data
Category Input Data Values
Basic Pay Data Current Annual Pay
Pay Period
Federal Withholding Data Filing Status
Have you filed a new IRS Form W-4 with your employer since 2019?
Number of Withholding Allowances (from your pre-2020 IRS Form W-4 if you haven't)
Extra Tax to Withhold per Paycheck (as requested on your IRS Form W-4)
401(k) or 403(b) Contributions Pre-Tax Contributions (%)
After Tax Contributions (%)
Flexible Spending Account Annual Contribution Data Health Care Spending Account
Dependent Care Spending Account
What if You Had a Raise? Desired Raise (%)

Your "Typical" Paycheck Data
Category Calculated Results Values
Basic Income Data Proposed Annual Salary (Including Raise!)
Typical Paycheck Amount
Federal Tax Withholding Amounts U.S. Federal Income Taxes
U.S. Social Security Taxes
U.S. Medicare Taxes
U.S. Additional "Medicare" Taxes (If Applicable)
401(k) or 403(b) Contributions Pre-Tax Contributions
After-Tax Contributions
Total Contributions
Flexible Spending Account Contributions Health Care Spending Account
Dependent Care Spending Account
Your Paycheck's Bottom Line
Take Home Pay Estimate Basic Net Paycheck Amount
... But, After Social Security's Taxable Income Cap Is Reached, It Becomes (If Applicable, for a Full Paycheck)
... And Then, After Additional Medicare Tax Income Threshold Is Reached, It Becomes (If Applicable, for a Full Paycheck)

Now that we've given you a sense of how much money you'll have withheld by the IRS in 2022 from each of your paychecks, we should note that there are some factors that can really complicate your withholding tax results depending upon how much you cumulatively earn during the year.

For example, once you have earned over $147,000, you will no longer have the Social Security payroll tax of 6.2% of your income deducted from your paycheck (or 12.4% if you are self-employed, where our tool above is designed for those employed by others). But then, by the time that happens, you'll have long been paying taxes on your income that are taxed at rates that are at least 10% higher than those paid by over half of all Americans.

There's also the complication provided by the so-called "Additional Medicare Tax" that your employer is required to begin withholding from your paycheck if, and as soon as, your year-to-date income rises above the $200,000 mark, which is one of the new income taxes imposed by the "Affordable Care Act" (a.k.a. "Obamacare") that are still in effect. Since the money collected through this 0.9% surtax on your income does not go to directly support the Medicare program, unlike the real Medicare payroll taxes paid by you and your employer, it is really best thought of as an additional income tax. That additional income tax is not adjusted for inflation, which means that those who must pay it are subject to 1970s-style income tax bracket creep, even though the tax was sold on the claim that it would be limited to very high income earners.

In the tool above, in case the amount of your annual 401(k) or 403(b) retirement savings contributions exceed the annual limits set by law, we've limited the results our tool provides to be those consistent with their statutory limits, and will do so as if you specifically set the percentage contributions for these contributions with that in mind. Our tool does not consider whether you might take advantage of the "catch-up" provisions in the law that are available to individuals Age 50 or older, which increase those annual contribution limits.

Elsewhere on the Web

There are other salary and hourly paycheck calculators like this on the Internet, including the very well done tools available at PaycheckCity.com. PaycheckCity's State Salary Paycheck Calculators allow you to determine the amount of state income tax withholding that will be taken out of your paycheck in addition to what the federal government will take out. Payroll processing giant ADP also has a salary paycheck calculator that will give you good results. Overall, we find the format of PaycheckCity's calculators to be more user friendly, but ADP's version has the benefit of having an all-in-one user interface.

Then again, if you live in one of the nine states that have no personal income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), our tool above will provide you with a very good estimate of your actual take-home pay.

Previously on Political Calculations

We've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005!

What One City’s Liquor Tax Collections Says About The Cost of Pandemic Lockdown Restrictions

Lockdown restrictions played a major role in determining where Americans could eat in 2020 and early 2021. And drink, for that matter!

We have some unique data to illustrate that latter point. The city of Philadelphia imposes a special liquor tax of 10% on the sale price of alcohol-containing beverages within the city. The tax does not apply to sales made by liquor stores and beer distributors, but does apply to the sales of beverages containing alcohol at public venues, such as bars, hotels, restaurants, and clubs.

During the coronavirus pandemic, most of these venues within Philadelphia were closed or forced to operate at severe capacity limits starting in March 2020. After being allowed to reopen or to expand their operations in the following months, many still were prohibited from providing bar service or serving drinks without food until April 2021.

These restrictions mean that Philadelphia's liquor tax collections provide a direct picture of how pandemic lockdown restrictions affected the ability of consumers to buy alcohol while dining away from home. The following chart shows the trailing twelve month total of Philadelphia's liquor tax collections from June 2015 through June 2021, covering the city's last six fiscal years.

Trailing Twelve Months Philadelphia Liquor Tax Collections, June 2015 - June 2021

Philadelphia's trailing twelve month liquor tax collections plunged by 67.5% from February 2020 through March 2021 due to local coronavirus pandemic lockdown restrictions, from $83,734,909 to $27,150,414. With the city's 10% liquor tax, that $56.6 million decline in tax collections indicates a $566 million reduction in the sale of alcohol containing beverages at Philadelphia's public dining venues.

And that's just one city within the United States. How big do you think that number would get if we had the data for all of them?

Reference

City of Philadelphia Department of Revenue. School District Monthly Revenue Collections, Fiscal Years 2015, 2016, 2017, 2018, 2019, 2020, 2021 [PDF Documents]. Accessed 24 September 2021.