Do You Understand Your Taxes?

2016 is over and so are your payments to the IRS for that year. We all know about tax brackets based on income (if you don’t, visit our post), but how do you compare to your neighbor?

The IRS says in 2015, Americans filed over 150 million tax forms, earning $10 trillion in adjusted gross income (gross income [full paycheck plus any additional income] minus deductions). The recorded tax liability reached almost $1.5 trillion. So, the average American made approximately $67,000 and paid almost $10,000 in taxes. This is 14% of your gross income and change.

Wait a second! How come you are paying a lot more than 14%? There are Americans who are low-income and subject to the Earned Income Tax Credit or EITC. Excluding these returns, the average percentage increases to over 20%.

To this, you must add Social Security (SS) and Medicare. These are taxes deducted irrespective of citizenship. In case you didn’t know, these two deductions are charged by your employer and you directly. Hence, combined can add up to 12.4% for SS and 2.9% for Medicare.

I think by now, you can see that on average the initial tax on your income of 14-20% + SS 12.4% + Medicare of 2.9% adds up to the range of 29.3% - 35.3%.

Remember, there are many variables to how much taxes you pay. Overall, the next time you look at your income return, compare your deductions against your income and find out where you stand among Americans.

To read more about tax strategies, click here

Alex Lopez O'Bryan

Sonoman Investments

Written by:
Alex Lopez
Posted on:
August 12, 2017