In the United States, you generally pay federal income tax, payroll taxes for Social Security and Medicare, state and often local income taxes, sales and excise taxes when you buy things, and property taxes if you own real estate. Higher earners and investors also pay capital gains tax and a Medicare surtax, and very large estates face federal estate tax. The question of what taxes do we pay has no single answer because the mix depends on where you live, how you earn, and what you spend money on, but the categories below cover almost everyone.
Federal Income Tax
Federal income tax is progressive: your income is divided into slices called brackets, and each slice is taxed at its own rate. You don’t pay the top rate on every dollar, only on dollars that fall inside that top bracket.
For the 2026 tax year, single filers face these rates:1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on income up to $12,400
- 12% on income over $12,400
- 22% on income over $50,400
- 24% on income over $105,700
- 32% on income over $201,775
- 35% on income over $256,225
- 37% on income over $640,600
Taxable income includes wages, salaries, bonuses, tips, freelance earnings, and investment income like dividends and interest. Before the brackets apply, you subtract the standard deduction: $16,100 for single filers in 2026, or $32,200 for married couples filing jointly.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 That amount shields your first chunk of earnings from federal income tax entirely. You can itemize instead if things like mortgage interest, charitable gifts, and state taxes paid add up to more than the standard deduction.
You report all of this on Form 1040 by April 15 each year.2Internal Revenue Service. When to File Filing Form 4868 gets you an automatic six-month extension to file, but not to pay; interest and penalties still start running on any unpaid balance after April 15.3Internal Revenue Service. File Your Tax Return
Social Security and Medicare Taxes on Your Paycheck
Every paycheck has money taken out for Social Security and Medicare before you see it. These are FICA taxes, and they fund those two specific programs rather than general government spending.4Social Security Administration. What is FICA?
For employees in 2026:
- Social Security: 6.2% of gross wages, up to $184,500. Wages above that cap aren’t taxed for Social Security.5Social Security Administration. Contribution and Benefit Base
- Medicare: 1.45% on all wages, with no cap.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Your employer matches both, bringing the combined FICA contribution to 15.3% of wages.4Social Security Administration. What is FICA? The employer’s half never shows on your pay stub but it’s a real cost of employing you.
Once your wages cross $200,000 in a calendar year, an additional 0.9% Medicare tax is withheld ($250,000 threshold for married couples filing jointly). Employers start withholding it automatically at $200,000 regardless of your filing status, so married filers sometimes settle up at filing time.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates There is no employer match on this piece.
If you work for yourself, you pay both halves. Self-employment tax runs 15.3% on your net earnings, split as 12.4% for Social Security (up to the $184,500 cap) and 2.9% for Medicare.7Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) You can deduct half of that when figuring your adjusted gross income, which softens the impact.
State and Local Income Taxes
Most states also tax income, but the structures vary widely. About half use graduated brackets similar to the federal system. Others apply a single flat rate. Eight states impose no individual income tax on wages, relying instead on sales taxes, property taxes, or natural resource revenue. Among states that do tax income, top rates run from roughly 2.5% to over 13%.
Some cities and counties add their own layer, typically 1% to 4% of earnings. Those add up in major metros where employers withhold a separate city wage tax. If you live in one state and work in another, you may owe both, though most states offer a credit for taxes paid to another state to prevent full double taxation. You’ll usually file separate state and local returns alongside your federal 1040.
Sales and Excise Taxes
Sales tax hits you when you spend rather than when you earn. Most states charge a percentage on retail purchases, collected by the retailer. Five states have no statewide sales tax at all, while combined state and local rates elsewhere can reach 10% or higher. The national population-weighted average sits around 7.5%. Many states exempt groceries and prescription medications, with the specifics varying by state.
Excise taxes target specific products. You pay federal excise taxes on gasoline (18.4 cents per gallon, which includes a small surcharge for underground storage tank cleanup), diesel, alcohol, tobacco, and airline tickets.8Office of the Law Revision Counsel. 26 U.S.C. 4081 – Imposition of Tax Most states pile on their own excise taxes. These are usually built into the sticker price rather than shown as a separate line on the receipt. Federal gas tax revenue funds highway construction and maintenance.
Property Taxes
Property tax is the main revenue source for local governments, school districts, and fire departments. It’s based on the assessed value of your real estate: your home, land, and any permanent structures. A local assessor estimates each property’s value periodically, and the local government applies a rate (sometimes expressed in mills, meaning dollars per $1,000 of value) to produce your annual bill.
Many jurisdictions offer homestead exemptions that reduce the taxable value of your primary residence. These commonly benefit seniors, people with disabilities, and sometimes all owner-occupants. Amounts and eligibility rules differ by location, so check with your county assessor’s office. Some areas also cap how much your assessed value can rise each year, which protects long-time homeowners when local values surge.
Some states also tax personal property like vehicles, boats, or aircraft, usually collected annually when you renew registration. Falling behind on property taxes can produce a tax lien on your home, which blocks a sale or refinance until the debt is cleared. Long enough unpaid, the local authority can begin foreclosure and sell the property to recover what’s owed.
Capital Gains and Investment Income
Profits from selling investments you held longer than a year are taxed at lower rates than ordinary income. For 2026, the long-term capital gains rate is 0% for single filers with taxable income below $49,450, 15% for income between $49,450 and $545,500, and 20% above that. Short-term gains on assets held a year or less are taxed as ordinary income at your regular bracket.
Higher earners also face the Net Investment Income Tax, an additional 3.8% on interest, dividends, capital gains, and rental income once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.9Internal Revenue Service. Net Investment Income Tax
Estate and Gift Taxes
Federal estate tax applies only when someone dies with assets above a lifetime exemption. For 2026, that exemption is $15,000,000 per person, following the One, Big, Beautiful Bill signed in July 2025.10Internal Revenue Service. What’s New — Estate and Gift Tax Married couples can effectively shield $30,000,000 combined. Only value above the exemption is taxed, at rates up to 40%. Fewer than 1% of estates owe any federal estate tax.
While alive, you can give money or property without triggering gift tax if you stay within the annual exclusion: $19,000 per recipient for 2026.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A married couple can give one person $38,000 in a year with no reporting. Larger gifts eat into your lifetime exemption rather than producing an immediate tax bill; you’d need to give away more than $15,000,000 over your lifetime before actually owing gift tax.
Credits That Reduce What You Owe
Tax credits cut your bill dollar for dollar, which makes them more valuable than deductions that only shrink taxable income. Two of the most widely claimed are the Child Tax Credit and the Earned Income Tax Credit.
For 2026, the Child Tax Credit is worth up to $2,200 per qualifying child under 17, with up to $1,700 refundable if you don’t owe enough tax to use the full amount. The Earned Income Tax Credit targets low- and moderate-income workers and can be worth up to $8,231 for a family with three or more qualifying children. The EITC phases out as income rises, and the exact amount depends on filing status and number of children. Both credits require you to file a return to claim them, even if your income is low enough that filing wouldn’t otherwise be required.
What Happens If You Don’t Pay
If you file your return late, the IRS charges 5% of your unpaid tax for each month or partial month the return is overdue, capped at 25%.11Office of the Law Revision Counsel. 26 U.S.C. 6651 – Failure to File Tax Return or to Pay Tax If you file on time but don’t pay in full, a separate penalty of 0.5% per month applies to the unpaid balance, also capped at 25%. When both apply in the same month, the failure-to-file penalty drops by 0.5% so you aren’t hit twice. Filing late costs far more than paying late, so file on time even if you can’t pay the full amount. An approved IRS payment plan drops the late-payment penalty to 0.25% per month.12Internal Revenue Service. Failure to Pay Penalty
If you earn income without withholding, such as freelance work, rental income, or investment gains, you’re expected to make quarterly estimated payments due April 15, June 15, September 15, and January 15 of the following year.13Internal Revenue Service. Individuals 2 – Estimated Tax Missing those deadlines can produce an underpayment penalty even if you pay the balance at filing time. You avoid the penalty if you owe less than $1,000 at filing, or if you paid at least 90% of your current-year tax or 100% of last year’s tax (110% if your adjusted gross income exceeded $150,000).14Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
Willfully trying to evade federal taxes is a felony, with penalties of up to five years in prison and fines up to $100,000.15Office of the Law Revision Counsel. 26 U.S.C. 7201 – Attempt to Evade or Defeat Tax Honest errors on a return produce civil penalties and interest; deliberately hiding income or inventing deductions is what the IRS pursues criminally. Criminal prosecutions are rare, but civil penalties and interest on ordinary late filing and underpayment add up fast on their own.