Explanation of Federal Taxes

The government collects a number of federal taxes from individuals and businesses to finance various public services, education, science, interest on our national debt and government salaries. The programs include Social Security, Medicare, Medicaid, defense, international security and other safety net programs (such as assistance and tax credits for low-income families).

Minimum Required to Pay Taxes

Whether you must pay federal taxes depends on your age (older than 65 or younger), filing status and income.

Tax Deductions

A number of deductions are available, such as deductions for educational or medical expenses, to help lower your taxable income.

Tax Credits

You might be eligible to take a tax credit, such as the Hope credit or Earned Income Tax credit, which can significantly reduce your tax liability. Unlike a deduction, a credit is subtracted from the amount you owe the government (versus just your taxable income). Credits can result in much larger savings than deductions.

Types of Federal Taxes

You might be subject to income and FICA (Social Security and Medicare) taxes, self-employment tax, corporate tax, estate tax, payroll taxes and excise taxes.

Penalties

Failure to pay your taxes can result in steep fines and penalties.

References

• Business Taxes
• Where Do Our Federal Tax Dollars Go?