Wages Vs. Taxes

The federal government taxes wages as part of your earned income. Wages are subject to both income and payroll taxes.

Income Tax

All income, including wages, counts towards your total taxable income. The income tax system in the U.S. uses a progressive system, meaning that your tax rate increases as your income gets higher.

Tax Bracket Ranges

The tax brackets for federal income taxes range from 10 to 35 percent, depending on your income and filing status.

Payroll Taxes

Your wages are also subject to payroll taxes, which include two parts: one for social security taxes and one for medicare taxes. As of 2009, the total payroll tax is 15.3 percent.

Function

If you are an employee, you split the FICA taxes with your employer. If you are self-employed, you pay the entire amount.

Tax Withholding

You are required to pay taxes on your income as you earn it, so your employer will withhold a portion of your paycheck to cover the taxes you will owe at the end of the year. The amount withheld depends on your income level and the amount of exemptions you claimed on your W-4 form.

References

• Social Security Administration: Social Security Update 2009
• taxfoundation.org: U.S. Federal Individual Income Tax Rates History, 1913-2009
• IRS: 2010 Federal Income Tax Withholding Tables