The Dual Tax System: Federal Taxes vs. State Taxes in the U.S.

Do you know an average American spend more time dealing with taxes than sleeping? On top of that there is a dual tax system in the United States, namely:

Federal Tax
State Tax

If you live in an American state that collect taxes from its residents, you might already know about it. However, what about the tax laws, differences between these tax systems and common concerns. Well nothing to worry about! This blog will explain everything you need to know about federal taxes and state taxes.

Federal Tax Vs State Tax

Lets start with the basics! Federal tax is all taxable amount IRS collects from you in the United State. It’s typically a progressive rate of tax on all your taxable income. On the other hand state tax are collected by local tax agencies of your state. Below are key differences federal and state tax have:

Feature	Federal Tax	State Tax
Imposed by	Federal government	Individual states
Rate structure	Progressive income tax	Varies by state (flat, progressive, or regressive)
Revenue usage	National defense, Social Security, Medicare, etc.	Education, infrastructure, healthcare, etc.
Deductions and credits	Generally standardized	Can vary by state

Quick Note: Not all US states have tax laws. Additionally each state law varies from other states.

Let’s discus both tax laws in details!

Federal Tax Laws:

Federal tax department is a necessary part of U.S legal system governed by IRC (Internal Revenue Code). The department generally cover, income tax, gift taxes, estate taxes, payroll and excise taxes. Furthermore, it works on progressive tax collections, that means as your taxable income increases, so does the tax percentage.

According to 2023s IRS data:

Tax Rate	On Taxable Income From…	Upto…
10%	$0	$11,000
12%	$11,001	$44,725
22%	$44,726	$95,375
24%	$95,376	$182,100
32%	$182,101	$231,250
35%	$231,251	$578,125
37%	$578,126	And up

Federal Tax Levels:

The government imposes taxes on multiple levels. It includes:

Income tax: Federal government charges tax from all entities including individuals, businesses, self-employed person and corporations.
Excise tax: Excise tax is typically charged on certain goods and products. However, there is no filing process as the tax is included with goods prices. The main idea is to refrain consumers from specific consumptions such as tobacco, alcohol and marjuana.
Gift tax: gifting wealth or property is subject to tax. However, small gifts in certain range aren’t taxed by government.
Payroll tax: Federal tax laws also apply to payroll. The tax is directly deducted from paycheck before it comes to employee’s pocket.
Corporate income tax: Corporates pay a portion of their profit to the government. For instance, consider federal tax on capital gains.

Federal Tax Online Payment:

As we know, government charge taxes on all entities. If you are earning something that means your are liable to pay taxes. Talking about methods to pay, you can use tradition methods such as check or money order, cash, and same-day wire. Additionally, you can pay online with your debt card, credit card and online wallets. The process is pretty simple:

Go to IRS Payments and choose “Pay now with direct pay” if you are planning to pay with your bank account.
You can also use pay now by direct card or digital wallet.
There will a few simple clicks and your tax will be payed!

Furthermore, if you are struggling at any point like, preparing your taxes, doing calculation or bookkeeping services you can contact Tax King Services for aid.

State Tax:

State tax are imposed by local state government and these taxes vary with each state. For instance NYC have its own tax laws that are relatively same as government laws. However both tax are applicable separately.

Furthermore, state tax work on similar principle of federal taxes but deduction rates, available exemptions and tax percentage varies.

Note: If your state imposes tax laws it means you have to pay both federal taxes as well as state taxes.

States Without Tax Laws:

The picture isn’t all thrown for many U.S citizens. We have made a quick list of states that don’t apply any income tax laws.

Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming

Although, these states impose other tax laws including sales tax and property taxes.

FAQs About Tax Returns

1- Where’s My Federal Tax Refund?

You can check your federal tax refunds as well as state refunds on IRS official website. Simply go to “where’s my refund” page and fill up the form. It will generally ask you about SSN (Social Security Number), year of expected refund, martial status and expected refund. Just give it all the information and you will get the data in real time.

2- How Much Federal Tax Should I Pay?

It depends on how much you earn. As United State charge on progressive tax basis your tax will be 10% to 37% whatever matches with your income level.

3- When Federal Tax Due?

Generally IRS tax due date is April 15 for the following year. However, if you are self-employeed then tax can be charged quaterly. Like 15 of every fourth month.

4- How Much Federal Tax is Deducted From the Paycheck?

The federal tax deduction from your paycheck depends on your filing status, your income, number of allowances and exemptions claimed. Their no fix amount that fits all employees and deduction rates.

5- Is Federal Tax ID Same as EIN?

The terms federal tax ID and EIN are used interchangeably. However, these are not identical terms. Federal tax ID is typically identification number assigned by IRS to different entities. It can be a business, self-employed person or non-profit organization.
On the flip side, EIN (Employer Identification Number) is used by business owners and non-profit organizations excluding single proprietorship business and individuals. The typical format of EIN is XX-XXXXXXX.

6- How Federal Tax is Calculated?

Determine your gross income and subtract exemptions such as student loan, retirement fund, health and savings, and tution and fees. Now apply all deductions and applicable credits. By subtraction all these deductions from your income you will get AGI (Adjusted Gross Income). Now you can calculate the tax by the progressive tax matrix provided by IRS.

The Bottom Line:

Understanding dual tax system in US can be complex. But having a basic knowledge of how these things work help you understand taxes better. Additionally, information about federal tax ID and EIN enhances your tax knowledge and will help you collaborate better with your tax preparers.

No doubt, it will help you understand federal and state laws better. However, if you are tired of feeling like a human calculator during tax season, you can hire a professional accounting service for ease of mind.

Lily Poole

Lily Poole is a seasoned tax expert with a wealth of experience in the field of taxation. As a key member of the Tax King Service team, Lily leverages her extensive knowledge to provide insightful and accurate content, helping businesses and individuals navigate the complexities of tax regulations.