How Much Tax Do You Pay in the USA? Types and Percentages of Taxes in the United States (US)

Have you ever wondered how much taxes really impact your daily life in the United States? Surprisingly, residents of this country spend around 29% of their income on tax obligations. That’s why understanding the main taxes in the United States is an essential tool that will help you protect your finances and plan wisely.

We have designed this article to provide clarity on the US tax system from the ground up, breaking down each relevant tax for residents and non-residents. In addition, we will answer frequently asked questions that often arise when dealing with the US tax calendar. By the end of this article, you will not only have a practical understanding of your tax responsibilities, but also strategies for effectively managing your tax burden. It’s time to get your taxes in order!

How does the tax system work in the United States?

The United States operates a multi-level tax system that combines federal, state, and local taxes. This decentralized structure allows different government entities to collect revenue to fund essential public services such as healthcare, education, infrastructure, and security. Understanding how these levels interconnect is essential to accurately anticipate your total tax burden, better forecast your tax obligations, and efficiently plan your personal finances.

Federal, state, and local taxes: What they are and how they apply

The US tax system is based on a three-tiered structure that clearly defines which types of taxes apply to each level of government.

• Federal taxes: These are taxes that affect everyone equally, regardless of the state or city where you live. This includes federal income tax and social security contributions.

• State taxes: These taxes can vary considerably depending on where you live.

• Local taxes: These are levied by counties and municipalities. Although they tend to focus on real estate and some local services, in certain urban areas they also include additional taxes on sales or specific economic activities.

This distribution allows each level of government to meet different needs, but requires taxpayers to stay informed about all the regulations that apply in their place of residence.

Income tax: The most important tax for US residents

Of all the taxes that affect US citizens and residents, income tax is undoubtedly the most important. This tax is levied on your total income, whether it comes from wages, investments, rentals, or self-employment. Its impact on your personal finances can be significant, so understanding how it is calculated and how you can optimize it is crucial for good financial health.

It is important to remember that you must consider not only federal income tax, but also any state tax that may apply depending on where you live. The combination of the two can vary considerably, making some states more attractive than others for certain taxpayers.

How income tax is calculated in the United States

Calculating income tax in the United States is a process that, although it seems complex at first, follows a clear logic. It all starts with adding up your gross income, which includes:

• Salaries

• Rental income

• Dividends

• Capital gains

• Government benefits

Once you have the total, you must subtract any available deductions. You can opt for the standard deduction, which is a fixed amount determined annually, or itemize your deductions if you have had significant expenses in areas such as mortgage interest, charitable donations, or medical expenses.

With your net income calculated, you apply the IRS’s progressive rate table to determine your gross tax. Then, you must check if you qualify for specific tax credits, such as the Child Tax Credit or the Education Credit, which are subtracted directly from the total you owe.

Tax rate ranges by income (Fiscal year 2025)

The tax bracket system in the United States is designed to be progressive and equitable. For the 2025 tax year, the applicable rates for individual taxpayers are as follows:

• 10%: for income up to $11,925

• 12%: for income between $11,926 and $48,475

• 22%: for income between $48,476 and $103,350

• 24%: for income between $103,351 and $197,300

• 32%: for income between $197,301 and $250,525

• 35%: for income between $250,526 and $626,350

• 37%: for income above $626,350

It is crucial to understand that these rates are applied progressively. For example, if your annual income is $100,000, not all of that amount will be taxed at 24%. Only the portion of income that falls within each bracket is taxed at the corresponding rate.

Differences between federal and state income taxes

While federal income tax applies uniformly across the country, state taxes vary significantly. Some states do not levy personal income tax, which can represent considerable savings. However, these states often compensate through higher sales or property taxes.

Payroll taxes in the United States: Social Security and Medicare

Payroll taxes are an essential part of the tax burden for employees and self-employed individuals in the United States. These taxes fund important social programs, such as Social Security and Medicare, which provide income and medical coverage for retirees and people with disabilities, as well as medical care for people over the age of 65.

Percentage allocated to Social Security

The Social Security tax in 2025 remains at 12.4% of the worker’s gross salary. This percentage is divided equally between the employer and the employee, each contributing 6.2%. For self-employed workers, the entire 12.4% burden falls on them under the so-called “self-employment tax.”

It is important to note that this tax applies only up to an income limit set annually by the federal government, known as the “Social Security Wage Base.” For the 2025 tax year, this limit is $176,100. Income above this amount is not subject to Social Security tax, which is relevant for financial planning, especially if you earn a high income.

Medicare contributions and health coverage

The Medicare tax in 2025 is 2.9% of gross wages, divided equally between the employer and the employee: 1.45% each. For self-employed individuals, the entire 2.9% burden is the responsibility of the taxpayer.

Unlike Social Security, Medicare does not have an income cap above which it no longer applies; all income is subject to this tax. In addition, there is an additional Medicare tax, known as the “Additional Medicare Tax,” of 0.9%, which applies to income above the following thresholds:

• $200,000 for individual taxpayers

• $250,000 for married couples filing jointly

• $125,000 for married taxpayers filing separately

Property and real estate taxes in the US

This tax is calculated based on the assessed value of the property and is used to fund community services such as public schools, police, fire departments, garbage collection, and local infrastructure maintenance.

What makes this tax complex is its wide variability. Each state, county, and city can set its own rates and methods of property valuation, and in addition, many municipalities offer tax exemptions or reductions for certain categories of property owners, such as seniors, veterans, or people with disabilities.

How property tax is calculated

The calculation of property tax begins with an assessment of your property by local tax authorities. This assessment determines the assessed value, which does not always match the market value but serves as the taxable base.

A tax rate, known as the “mill rate,” is applied to this assessed value and varies by location. For example, if your property is valued at $300,000 and the local tax rate is 1.5%, your annual tax would be $4,500.

Additionally, some jurisdictions offer deductions or exemptions for certain property owners. Homestead exemption programs, for example, allow you to reduce the assessed value of your primary residence, which lowers your final tax bill.

Differences between states and urban/rural areas

The tax burden on property can vary dramatically depending on the location of your property. In densely populated urban areas, where real estate demand is high and public services are expensive to maintain, rates tend to be higher.

Conversely, in rural areas, although the tax base is usually lower due to the lower value of properties, the property tax rate may be proportionally high to compensate for the limited number of taxpayers.

Sales and consumption taxes in the United States

Unlike other taxes, this tax is paid at the point of sale and collected by the merchant, who then remits it to the appropriate tax authorities.

The peculiarity of this tax is that it varies significantly between states and, in many cases, between municipalities within the same state. Furthermore, not all products and services are subject to this tax.

Understanding how this tax works is key to planning your major purchases and correctly calculating the real cost of your acquisitions.

Exceptions and exemptions: Food, medicine, services

Many states offer specific exemptions to protect consumers when purchasing essential goods. For example:

• Unprepared food: In most states, purchases of basic food items such as fruits, vegetables, or bread are exempt from sales tax.

• Prescription drugs: Generally exempt, so as not to penalize access to medical care.

• Essential services: Some states exclude certain services such as childcare or educational services from sales tax.

States with the highest and lowest sales tax burden

• States with the highest burden: California, Tennessee, Arkansas.

• States with the lowest burden: Wisconsin, Wyoming, Missouri.

• States with no sales tax: Delaware, Montana, New Hampshire, Oregon, Alaska.

Knowing these differences is especially useful if you are planning major purchases or if you run a business that depends on the sale of taxable goods or services.

Taxes for foreigners and non-residents in the United States

Foreigners and non-residents who generate income within the United States are also subject to the country’s tax laws. However, their tax obligations differ from those of permanent residents or U.S. citizens.

Being aware of these rules is essential to avoid penalties and, at the same time, take advantage of legal opportunities to minimize your tax burden.

What taxes do permanent residents pay?

Permanent residents of the United States, commonly known as “green card holders,” have virtually the same tax obligations as U.S. citizens. This means that they are required to report and pay taxes on their entire global income, regardless of where it was earned.

Tax obligations of non-residents

Tax non-residents—people who do not have a green card and do not meet the IRS’s “substantial presence test”—are only required to file and pay taxes on income from U.S. sources. This includes:

• Salaries for work performed in the U.S.

• Income from renting property located in the U.S.

• Earnings from businesses operating within the country.

Unlike permanent residents, non-residents have limited access to tax deductions and credits. For example, they cannot claim the standard deduction and can only deduct expenses directly related to their U.S. income.

The key for non-residents is to thoroughly understand the applicable legislation and, whenever possible, seek the assistance of tax advisors specializing in international taxation to correctly fulfill their obligations and avoid penalties.

International treaties to avoid double taxation

The United States has bilateral tax agreements with more than 60 countries with the aim of avoiding double taxation of the same income. These treaties establish which country has the right to tax certain types of income and under what conditions tax exemptions or reductions may apply.

Now that you know what taxes you have to pay if you live in the U.S. and how they affect you, you have a clear, in-depth, and practical overview to properly manage your tax obligations in the country.

Main taxes in the United States: New developments following Donald Trump’s inauguration in 2025

Donald Trump’s second presidency in 2025 has brought with it significant tax proposals aimed at reforming the U.S. tax system. Below, we detail some of the main changes you should be aware of:

• Proposed income tax exemption for incomes below $150,000: This measure seeks to ease the tax burden on the middle class and stimulate domestic consumption.

• Elimination of taxes on Social Security benefits, tips, and overtime: These measures are designed to increase the net income of workers and retirees.

• Extension of the 2017 tax cuts: This extension would mean a significant reduction in federal tax revenue over the next decade.

Proposal to replace income tax with tariff revenue: President Trump suggested that revenue generated from tariffs could be sufficient to eliminate income tax in the United States. This idea would require congressional approval and would represent a fundamental change in the country’s tax structure.

These proposals reflect an ambitious approach to tax reform, with the goal of reducing the tax burden on citizens and restructuring the federal government’s sources of revenue. However, their implementation will depend on legislative approval and could have significant implications for the U.S. economy and fiscal deficit.

Frequently asked questions about taxes in the United States

The U.S. tax system raises many questions, especially for those who are unfamiliar with its structure. In this section, we will answer some of the most common questions to help you gain a clear and practical understanding of your tax obligations.