Taxes strain political debates and upset eager new workers whose paychecks fall short of their promises. These side effects hardly prompt tea parties, but once workers understand how their representatives distribute their income taxes, that realization can prompt an improved perspective on the process. Income taxes exist in three types: Federal Insurance Contributions Act (FICA) tax, federal income tax and other local and state taxes.
- Social Security and Medicare (FICA)
Social Security and Medicare, like the other two types of taxes, subtract from nearly every worker’s paycheck, but they uniquely lack frequent opportunities for refunds. Employers will withhold about seven percent of a person’s income for the tax. This money helps pay into the U.S. government’s social safety net. Retirement benefits and disability support, among other similar programs, each receive funding from these taxes, and lawmakers designed the system so it will essentially result in benefits for a person equal to what he or she paid in. Notably, FICA does not fund all programs associated with the social safety net.
“FICA is generally referred to as payroll taxes, and it typically includes Social Security tax and Medicare tax. Social Security is what’s called a regressive tax. So, it actually has a maximum amount in your income, like you max it out, and you no longer have to pay Social Security after that, but that’s for people who are making well over $100,000 a year. So Social Security tax goes into the Social Security pension fund, and it’s a pay-in payout system. You pay in, and then you get paid out when you are elderly, or if you become disabled or if you are the survivor of a worker, meaning that you are a child and your parents passed away before you reached adulthood, you get a portion of their Social Security after they die,” Advanced Placement (AP) Microeconomics teacher Tara Sisino said.
- Federal Income Tax
Unlike FICA, workers can receive exemptions from federal income tax without high salaries. Working high schoolers, if they make under the $14,600 minimum, do not need to pay these. As employees transition into higher-paying positions, though, they will notice upticks in the percentage they pay into these taxes.
The government uses its money from this stream to fund everything from Supplemental Nutrition Assistance Program (SNAP) benefits to the military and even legislators’ salaries. The Internal Revenue Service (IRS) issues tax refunds primarily for payments into the federal income tax. The majority of complications with the tax process occur here, but these also fund oodles of government services.
- State/local taxes
States and municipalities might also collect income taxes. In Georgia, the rate sits at about five percent. Georgia’s PeachCare and other healthcare programs, its educational system (both K-12 and higher) and other government functions all benefit from the generated money. Other local taxes may exist, but generally, these will pale in comparison to those imposed federally.
For home and business owners, other taxes lurk around the corner. While the majority of Cobb County does not incur other income taxes, property tax exists based on the land’s assessed value. These taxes fund local happenings, including libraries and the fire department.
