Oh, taxes. You know we have to talk about them. And yes, I'm with you. I want to hit the snooze button as soon as I hear the word, too. There's a lot to cover here because as financial adults, we want to understand some key tax basics that will help us file our taxes, minimize (very legally) what taxes we pay, and generally reduce our stress level.
What Are Taxes?
Taxes are money we pay to our federal, state, and local governments so that they can run and carry out programs. At the federal level, think Social Security and Medicare, and at the state and local levels think roads and parks.
While it can feel like a bummer to pay taxes, they deserve a reframe. In my conversation with Georgia Lee Hussey, she asked, “What would change if we shifted our language from tax burden to collective or community support? I like taxes. I would really like my future employees to go to good schools, I really like to have a park to walk through on my way to work and bridges that don't fall down.”
Our current federal income tax system is on a graduated scale. The more money you earn, the higher your tax bracket (well, kind of – more on this later). State taxes vary by state. Nine states don't have income tax and some cities charge their own additional income tax.
2022 Federal Marginal Tax Rates by Income (this doesn't include state and local taxes)
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