Both employees and businesses need to understand taxes in the United States. Main types of taxes are charged both at national, regional, and local levels to fund various social fund services like education, development of infrastructure, etc. In this way, tax can be complicated. The fundamental information will enable a person to meet the requirements of the tax law as well as improve their financial control.
This guide focuses on the basic types of taxes paid by individuals and businesses in the United States of America including income taxes, state unemployment insurance (SUI) taxes, Social Security and Medicare taxes, sales, property, excise taxes, and corporate income taxes. So let’s discuss all these types in detail:
Contents
1. Income Tax
It’s a direct tax imposed on income earned by people and companies by federal as well as state governments. It includes areas of income like wages, business income, and investment income. The U.S. federal income tax on its citizens is a type of progressive tax as the tax rates are relative to the income being earned.
Each state has its income tax laws across the US. Companies and individuals must pay a certain amount of taxes or deduct them from their wages as required by law to avoid penalties
2. State Unemployment Insurance (SUI) Tax
SUI tax is employers’ tax on their employees to meet the need for unemployment payments to eligible workers. This tax assists in giving employees who are laid off from their positions briefly some kind of financial assistance. Here, learning what is SUI tax can help employers manage state unemployment insurance more effectively.
SUI tax rates are calculated differently in each state of the United States and the employees with previously laid-off workers may be charged with higher SUI tax. New employers base their rates on a starting point, which can be adjusted according to performance and incurred losses.
3. Social Security and Medicare Taxes known as FICA
FICA taxes are paid into Social Security and Medicare, which are the two main pillars of the United States welfare system. Social security tax is 6.2%, payable or receivable for retirement, disability, and surviving relatives’ benefits.
Employer Medicare tax is 1.45%, for the healthcare of elderly people. These are shared between employers and employees, with 6.5% paid by employers and 7.65% by employees. Employees who work for themselves and are paid per horse that they work also pay self-employed contributions at the full rate (15.3%). These taxes help in providing cash benefits for those who are retired or not doing work because of disability.
4. Sales Tax
Sales tax refers to the taxation of goods and services for sale within the state and local level tax systems. Consumers pay for sales tax at the time of purchase and then pass it on to the store. Again, the rates in this type of tax vary, and some states like Delaware and Oregon do not implement sales tax at all.
Every company has to adhere to specific sales tax rules in each state it is located in. Retail taxation usually involves procedures such as collection, and payment of sales taxes, and any failure to observe these measures exposes you to legal hazards and fines.
5. Property Tax
Property tax is a type of local tax on immovable property lying in residential, commercial, and industrial buildings, as well as the land. Property tax is calculated based on the value of the property assessed and local property tax rates.
These taxes are for paying schools, departments, construction of roads, etc they are part of the state and local taxes. Homeowners get an annual statement, but one can apply for exclusion. In some cases of non-payment of property taxes, the government is allowed to place a lien on the property or repossess the property, so timely payment is necessary
6. Corporate Income Tax
It refers to an indirect tax that is paid on company profits and is due on both federal and state levels. The federal tax rate is 21% at present and the state taxes differ from each other. Taxable income on the other hand is arrived at by subtracting business expenses from total revenue which includes amongst others wages, rent, and other overheads.
There are so many things that need to be documented so that the right report on income and the right claim for the deductions can be made. Noncompliance with corporate tax laws can result in audits, fines, or extra taxes.
Conclusion
Knowledge of such basic types of taxes is useful for understanding the American taxation system. Understanding your responsibilities as an employer you know your obligations such as; SUI, FICA, extra penalties, and sales and excise taxes. As this article has shown, the taxpayer benefits from appropriate planning and record-keeping to minimize the chances of penalties if they don’t fulfill the required tax obligations.
