Taxes are an annual burden we all face. It’s annoying, no doubt about it. From gathering forms, seeing a tax man or booting up that tax software, to waiting for weeks or months for that refund, it causes quite an inconvenience. If all of this hassle has prompted you to wonder, “Why do I owe taxes?” then you’re not alone. Here’s a brief breakdown of why we pay taxes, where they go, and how much you’ll need to pay.
Why Do I Owe Taxes? | A Definitive Guide
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Why Do We Pay Taxes?
Simply put, we pay taxes because we live in a society. That means we all agree on certain rules and behaviors that make life better for everyone. This requires oversight, obviously, in the form of a central government. If there were no taxes, this will mean there was no central government. In turn, this means we were living in a state of anarchy or feudalism in which it was every person for himself.
Unfortunately, no taxes will result in most people going without the means to acquire basic services. The wealthy will be able to pay for food, medicine, and shelter (as well as other human needs), while the poor will not. Hence, taxes.
Taxes are a time-honored tradition stemming back to the earliest civilizations. Greeks and Romans levied taxes in order to pay for services such as roads, aqueducts, and the military. Today, taxes keep the government running, which costs a considerable amount of money. They are also used to pay for social services, hospitals, law enforcement, and major programs, such as Social Security. Let’s take a more specific look at where taxes go.
Where Do Taxes Go?
Taxes go to a huge variety of services. Every time you take advantage of a state or federal service, you are benefiting from American taxpayers. For instance, taxes go toward Social Security, which pays out for people who reach a certain age. They’re also used for food stamp programs, subsidized housing, and to pay educators’ salaries.
Overall, taxes are classified into a few basic categories. The main ones include:
- General government services
… and a variety of miscellaneous expenses that can’t be captured neatly in any of these categories. The United States government offers a handy pie chart breaking down spending by percentage per category. Other sources contest this view of spending. They suggest taxes are routinely miscategorized and put toward other endeavors.
Whatever you choose to believe about government honesty regarding tax dollars, the fact they exist is indisputable. However, the truth behind who pays taxes might surprise you.
Who Pays Taxes?
Nothing is certain but death and taxes, as the saying goes. But it turns out not everyone pays taxes after all. Some people end up paying none because they have enough credits to offset the amount they will otherwise owe. You may be able to claim credits if you have, for example, children or dependents. The government also offers credits for the elderly, for foreign income, for adoption, and for earned income.
It’s important to realize even people who don’t end up owing still have to file tax returns. No one is exempt from this because the Internal Revenue Service (IRS) needs to track earnings no matter what. Instead, the government uses a refund system to return money to those who don’t end up owing taxes.
Tax Brackets Determine Your Tax Rate
» The New 2018 Federal Income Tax Brackets & Rates https://t.co/0fK2gWRJVR
— Jerry Dean Bowers (@vipertoxin) February 7, 2018
So, why is it some people don’t pay taxes? This is where the tax brackets come in. A tax bracket is a range of income, which determines what percentage of taxes you will pay for a specific amount of income. You can see the 2018 tax brackets here. These are divided between individual and married people who are filing jointly.
It’s also important to note that in the higher income brackets, you don’t pay that percentage of all your income. Rather, you pay the percentages listed in each bracket up to the limit of the bracket, then you pay the next-level percentage for the next range. This prevents people in the higher income ranges from being gouged by tax rates. It also ensures those in lower tax brackets don’t lose money needed for subsistence living.
Check out this helpful guide on how to compute how much tax you owe courtesy of Investopedia:
The next time you feel irritated at the idea of paying taxes, keep all of this in mind. While it’s no fun to pay the tax man, chances are good you’ll get your money back if you really need it. Plus, it’s good to live in a society, right? Rules keep things in order. So, the next time you wonder, “Why do I owe taxes?” just remember, it benefits you and the society in more ways than one!
Do you still ask yourself “Why do I owe taxes?” Share your thoughts in the comments below!