In the United States, individual income taxes are imposed by both the federal government and, in many cases, state and local governments. The federal income tax is progressive, meaning that as an individual’s income increases, the tax rate also rises. For the 2023 tax year, there are seven tax brackets with rates ranging from 10% to 37%. The specific rate that applies depends on the taxpayer’s income level and filing status, such as single, married filing jointly, married filing separately, or head of household.

Taxable Income: Taxable income in the U.S. includes wages, salaries, bonuses, tips, interest, dividends, capital gains, rental income, and other types of income. However, certain deductions, such as student loan interest, medical expenses, and retirement contributions, can reduce the amount of taxable income. Taxpayers may also subtract either a standard deduction or itemized deductions from their gross income to determine their taxable income. For the 2023 tax year, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly.

Tax Credits and Deductions: Tax credits are available to reduce tax liability, and they are more advantageous than deductions because they directly lower the amount of tax owed. Common tax credits include the Earned Income Tax Credit (EITC), Child Tax Credit, and Education Credits. Deductions, on the other hand, lower taxable income, resulting in a reduced tax liability. Itemized deductions include mortgage interest, charitable contributions, and medical expenses exceeding a certain percentage of adjusted gross income (AGI).

State and Local Taxes: In addition to federal taxes, most states and some local governments impose their own income taxes, which can be either flat or progressive. State income tax rates vary significantly, ranging from 0% in states like Texas and Florida to over 13% in California for high-income earners. Local taxes, which are imposed in some cities and municipalities, can be additional.

Filing Requirements: U.S. taxpayers are required to file an annual income tax return, typically due on April 15th of the following year. Extensions can be requested, allowing taxpayers to file by October 15th, but any taxes owed must still be paid by the original due date to avoid penalties and interest.

Social Security and Medicare Taxes: Besides federal and state income taxes, U.S. workers must also pay Social Security and Medicare taxes, known as FICA taxes. For 2023, employees pay 6.2% for Social Security on income up to $160,200 and 1.45% for Medicare on all wages, with no income cap.

Overall, the U.S. tax system is complex, and taxpayers often seek assistance from tax professionals or use software to navigate the various rules, deductions, credits, and filing requirements.