In the United States, you pay taxes to three levels of government: federal, state, and local. At the federal level, the Internal Revenue Service collects income taxes, payroll taxes, excise taxes, and estate taxes on behalf of the U.S. Treasury. Your state collects its own income and sales taxes through a state revenue or taxation department, entirely separate from the IRS. Local governments—counties, cities, townships, and school districts—collect property taxes and sometimes their own sales or income taxes to fund the services closest to home.
Each of these agencies operates independently, sets its own deadlines, and enforces its own rules. Knowing which one collects what helps you read your pay stub, understand your tax bill, and know who to call when something looks wrong.
The IRS and Federal Taxes
The Internal Revenue Service is a bureau within the U.S. Department of the Treasury, and it is the agency responsible for collecting federal taxes and enforcing the tax code.1Internal Revenue Service. The Agency, Its Mission and Statutory Authority Congress’s power to tax income comes from the Sixteenth Amendment, which authorizes taxes on income “from whatever source derived.”2Cornell Law School Legal Information Institute. 16th Amendment The rules themselves live in Title 26 of the United States Code.3Office of the Law Revision Counsel. Browse Title 26 – Internal Revenue Code
The IRS collects several distinct taxes that all end up on the same return or the same pay stub:
Federal Income Tax
Individual income tax is the federal government’s largest revenue source. It runs on seven progressive brackets, so you only pay the higher rate on the portion of income that falls within that bracket. Corporations pay a separate flat 21% rate on taxable income. You settle up with the IRS once a year by filing a return, with the annual deadline for the 2025 tax year falling on April 15, 2026.4Internal Revenue Service. IRS Opens 2026 Filing Season
Social Security and Medicare (FICA)
Payroll taxes fund Social Security and Medicare, and they are collected under the Federal Insurance Contributions Act. The IRS handles the actual collection, but the money is earmarked by law for specific trust funds and does not enter the general federal budget.5Social Security Administration. Social Security and Medicare Tax Rates Social Security tax runs 12.4% of covered earnings, split evenly between you and your employer at 6.2% each, and applies only to earnings up to an annual wage base ($184,500 for 2026).6Social Security Administration. Contribution and Benefit Base Medicare tax adds another 2.9%, again split between you and your employer, with no earnings cap.7Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates High earners pay an additional 0.9% Medicare surtax on wages above $200,000 (single) or $250,000 (married filing jointly), entirely out of the employee’s share.8Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Self-employed workers pay both halves themselves under the Self-Employment Contributions Act—15.3% total on net earnings—and can deduct half of that amount when calculating adjusted gross income.9Social Security Administration. What Are FICA and SECA Taxes?
Federal Unemployment Tax
Employers, not employees, pay federal unemployment tax under FUTA. The statutory rate is 6.0% on the first $7,000 of each employee’s wages, but employers who pay into their state unemployment system receive a credit of up to 5.4%, bringing the effective rate down to 0.6% in most cases.10Internal Revenue Service. Topic No. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return You’ll never see FUTA on your pay stub.
Federal Excise Taxes
Excise taxes apply to specific goods like gasoline, tobacco, and alcohol. Consumers pay them at the point of purchase, folded into the price of the product.
Estate and Gift Taxes
When someone dies with a large estate, the IRS may tax the transfer of that wealth before it reaches the heirs. For 2026, estates valued at $15,000,000 or less are exempt from federal estate tax. Gift tax works alongside estate tax to prevent people from giving away wealth before death to avoid it. You can give up to $19,000 per recipient per year in 2026 without any gift tax consequences or reporting requirements.11Internal Revenue Service. What’s New – Estate and Gift Tax The exemption is high enough that neither estate nor gift tax will apply to most people.
Foreign Account Reporting
One boundary worth flagging: if you hold money in foreign bank accounts, you report to two different Treasury agencies, not just the IRS. Combined foreign account balances above $10,000 at any point during the year trigger a Report of Foreign Bank and Financial Accounts (FBAR) filed with the Financial Crimes Enforcement Network, separate from your tax return.12Financial Crimes Enforcement Network. Report Foreign Bank and Financial Accounts Larger foreign asset holdings also require Form 8938 filed with the IRS under FATCA.13Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers Penalties for ignoring either obligation are steep.
Your State Revenue or Taxation Department
State governments have independent taxing authority under the Tenth Amendment, which reserves to the states any powers not specifically given to the federal government.14Legal Information Institute. Federal Power to Tax and the Tenth Amendment Most states have a Department of Revenue or Department of Taxation that handles collection, and you file state returns separately from your federal return. Most state forms use your federal adjusted gross income as a starting point, but the money and the paperwork go to two different agencies.
State income tax structures vary widely. Some states use a flat rate; others apply progressive brackets with top marginal rates ranging from under 3% to over 13%. Eight states levy no individual income tax at all. If you live in one of those states, your state tax burden may still be significant; it just shows up in sales tax, property tax, or other sources.
Sales tax is the other major state revenue source. About 45 states impose a statewide sales tax, with rates from under 3% to over 7% before local additions. Five states charge none. Retailers collect it at the register. If you buy something from an out-of-state seller that doesn’t charge sales tax, you technically owe “use tax” on that purchase, and state agencies have gotten more aggressive about enforcing it since the Supreme Court allowed states to require online retailers to collect.
Where you live determines which state can tax you. Most states treat you as a resident if your permanent home is there or you spend more than 183 days within the state during the year. People who split time between states or relocate mid-year can end up owing taxes to more than one state, though most states offer credits for taxes paid to other states to prevent true double taxation. Changing your driver’s license, voter registration, and mailing address all help establish a new domicile.
State revenue agencies share information with the IRS, so a discrepancy on your federal return often triggers a state inquiry as well. State filing deadlines usually align with April 15, but not always—check your state agency’s website rather than assuming.
Local Governments: Counties, Cities, and School Districts
Counties, cities, townships, and school districts collect taxes to fund the services closest to your daily life: public schools, fire departments, police, road maintenance, and water systems. The most significant local tax for most people is the property tax, based on the assessed value of your home or land. You typically pay this to a county treasurer or tax assessor, who distributes the revenue to various local entities.
Property tax rates are usually expressed in millage rates, meaning the tax per thousand dollars of assessed value. A millage rate of 20 means $20 in tax for every $1,000 of assessed value. Assessments happen periodically, and if you disagree with your property’s valuation, most jurisdictions have an appeals process through a local board of review. Failing to pay property taxes can result in a tax lien on your home and eventually a forced sale.
Many homeowners never write a check directly to the county because their mortgage lender collects property taxes through an escrow account and forwards the payment. If you own your home free and clear, you’re responsible for paying the bill yourself, and deadlines vary by jurisdiction.
Cities and counties may also layer their own sales taxes on top of the state rate. A state with a 6% sales tax might have localities adding another 1% to 3%, bringing the combined rate at the register well above the state figure. Some cities and larger metropolitan areas impose local income taxes or payroll taxes, which are usually small but add up for people who work in one city and live in another.
Because local taxing districts are smaller and more directly accountable, residents often have a direct say in tax increases through ballot initiatives, school board meetings, and town council votes. Property tax levies for new schools or fire stations frequently require voter approval.
What Happens If You Don’t Pay
Each agency enforces its own taxes. The IRS treats tax evasion as a felony: willfully trying to evade or defeat a federal tax can result in fines of up to $100,000 for individuals ($500,000 for corporations) and up to five years in federal prison.15Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax Criminal prosecution is reserved for the most egregious cases. Most people who fall behind face civil penalties instead.
The most common civil penalty is the failure-to-pay penalty of 0.5% of the unpaid tax for each month or partial month the balance remains outstanding, capped at 25% total.16Internal Revenue Service. Failure to Pay Penalty Interest compounds on top of that. For the first quarter of 2026, the underpayment interest rate is 7%.17Internal Revenue Service. Quarterly Interest Rates The IRS can also place a lien on your property to secure the debt, or issue a levy to seize wages and bank accounts. These enforcement actions don’t happen overnight—the IRS sends multiple notices before escalating, and you have the right to dispute the amount at each stage.
The IRS uses information reporting from Form W-2 and Form 1099 filings to verify what you report.18Internal Revenue Service. About Form W-2, Wage and Tax Statement When the numbers on your return don’t match what third parties reported, an automated notice usually comes first, before any human auditor gets involved.
State revenue agencies use similar matching systems, and local governments enforce property tax collection through liens and eventual tax sales. Underreporting income on one return while reporting it correctly on another is a reliable way to trigger scrutiny from both federal and state agencies at once.
Where to Dispute a Bill
Each agency has its own appeals process. If you disagree with an IRS notice proposing additional tax, you can request an independent review through the IRS Independent Office of Appeals. For disputes totaling $25,000 or less per tax period, a brief written statement is enough; larger disputes require a formal written protest.19Internal Revenue Service. Appeals Process You generally have 30 days from the date of the IRS letter to submit a request. If you can’t reach agreement through Appeals, you can take your case to the U.S. Tax Court before paying, or pay the tax and sue for a refund in federal district court or the Court of Federal Claims.
State tax agencies have their own appeals processes, usually through an administrative hearing board or a specialized state tax court. Local property tax disputes typically go to a county or municipal board of review before you can escalate to state court. The right agency to contact is always the one that sent you the bill.