Economy articles
US Federal Taxes: How the US Federal Government is Funded
The federal government collected $4.9 trillion in revenue in 2024, 99% of which came from taxes. How much does the average American pay? And who pays the most?
What does it cost the IRS to collect taxes?
The IRS spent $18.2 billion to collect $5.1 trillion in taxes in 2024. In other words, it cost the agency 36 cents for every $100 it collected. Collecting trillions of dollars from a population of 341 million people and approximately 35 million businesses is no small project. The IRS’s staff of 90,516 people collects and evaluates returns, issues refunds, offers taxpayer assistance, oversees tax-exempt organizations, and enforces tax law. How much money does the IRS collect? The IRS is responsible for collecting internal revenue — mostly in the form of taxes — from individuals and businesses across the US. In fiscal year 2024, the agency collected nearly $5.1 trillion, up 26.1% over the previous 10 years. That total included: $4.4 trillion from individual income taxes and other individual payroll contributions $565 billion from corporate income taxes $78 billion from excise taxes $48 billion from all othersThis revenue funds most of the federal government’s programs, from Social Security and Medicare to defense and support for veterans.
Which states have the highest and lowest income tax?
According to the most recent data, the average American paid $1,395 in state income taxes in 2023. Depending on which state you live in, you might be paying more, less, or nothing at all. What is state income tax? States collect state income taxes from residents annually. These are separate from federal income taxes, which are paid to the federal government. States commonly use income tax revenue to fund services and programs for: Education: supporting K–12 (teacher and administrator salaries) and higher education (state community colleges and universities) Healthcare: operating state-specific initiatives and state-administered programs such as Medicaid Corrections: building, maintaining, and operating state prison systems Transportation and infrastructure: building and maintaining roadways, bridges, airports, and public transit systemsPublic assistance: providing cash or benefits to individuals or families, including childcare services, transitional housing, and job training
Who doesn’t pay federal income taxes?
In 2022, 31.4% of tax filers paid no federal individual income tax. If deductions and credits reduce a filer’s taxable income to $0, they don’t have to pay federal income tax.
How has TCJA impacted individual income taxes?
The Tax Cuts and Jobs Act (TCJA), which took effect in 2018, changed individual income taxes: lowering tax rates, adjusting tax brackets, nearly doubling the standard deduction, and capping the state and local tax (SALT) deduction. It also made changes to federal corporate taxes. It was one of the biggest tax reform laws in recent years. But the individual tax changes were provisional, and most expire at the end of 2025 unless Congress extends them.TCJA lowered effective tax rates across income groups When TCJA was passed in 2017, the average effective federal individual income tax rate — the percentage of their income most taxpayers pay in taxes — was 14.4%. In 2018, it dropped to 13.0%. By 2022, the average effective federal income tax rate had risen to 14.1%: a 1.1 percentage point increase from 2018, but still below the pre-TCJA rate of 14.4%. This uptick was probably a result of broad economic factors like income growth, employment shifts, and taxpayers moving into higher income brackets, rather than a result of TCJA.
How much revenue do states make from marijuana taxes?
Marijuana is the most commonly used federally illegal drug in the United States, with 48.2 million people, or about 18% of Americans, using it at least once in 2019. In states where the drug is legalized, however, cannabis taxes constitute a substantial source of funding for programs ranging from healthcare initiatives to law enforcement.How do states tax retail cannabis sales? The federal government recognizes cannabis as a Schedule 1 substance, meaning it’s considered highly addictive and therefore illegal at the federal level. Despite this, 23 states and Washington, DC, have fully legalized the drug, with an additional 21 states either fully or partially legalizing medical marijuana.Due to the lack of federal recognition over the legality of cannabis, state laws and regulations vary, meaning there’s no single model for revenue collection from medical or recreational dispensaries.As a result, tallying the total revenues generated from cannabis taxes nationwide isn’t currently feasible. However, several states keep consistent records on their taxation of both recreational and medical marijuana, which illustrate how they tax the drug and distribute the revenues.
How much does the average American family pay in taxes?
One of the simplest ways to think about the US standard of living is to consider how much people earn in income, pay in taxes, and receive in government transfers. A government transfer can be cash, or non-cash in the form of services like Medicaid and Medicare.In 2021, the average American family in the middle 20% of income earners paid $17,902 in taxes to federal, state, and local governments. This includes direct taxes, such as income taxes, as well as indirect taxes, like payroll taxes. Of all the taxes the middle 20% paid in 2021, $10,391 went to federal income tax.
How do corporations avoid paying taxes?
In August 2022, President Joe Biden signed the Inflation Reduction Act into law. One of its provisions —a minimum 15% corporate tax — is designed to ensure corporations with $1 billion or more in average annual earnings pay taxes on profits even if they reduce their taxable income. The law took effect in 2023.A corporation’s taxable income is how much money a company makes in a year after subtracting any deductions.Income sources include:Sales revenueInvestment incomeRentCapital gainsDeductions can include:Any business expensesSalaries and wagesDepreciation valueAdvertising costsCharitable contributionsIn some cases, corporations find additional ways to reduce their taxable income. The methods include net operating losses, accelerated depreciation, tax credits, and profit shifting. The Inflation Reduction Act addresses these methods, but only partially.In 2016, the Government Accountability Office found that more than two-thirds of all active corporations had no federal income tax liability, including 42.3% of large corporations.Net operating lossesA corporation has a net operating loss when its business expenses and deductions are greater than its taxable income. Put simply, it’s when a company spends more than it makes. US tax law allows firms to carry over net operating losses from previous years to report lower taxable income for the current year.For example, if a corporation’s taxable income is -$3 million, not only would it not be liable for taxes in the current year, but a portion of that loss could also be carried over to the following year’s tax returns to reduce taxable income.Corporations are limited at carrying over 80% of their net operating losses. This is one of the main rules that allowed 19.5% of profitable businesses to pay no federal income tax in 2012.
'Sin taxes' by state: Where do people pay the most and least in alcohol and tobacco taxes?
Drinking and smoking are two more ways that Americans pay taxes.Every state and Washington, DC, has selective sales taxes on alcohol and tobacco. And like sales tax, alcohol and tobacco taxes are paid by people who buy those items.USAFacts looked at data from the Census Bureau and the Bureau of Economic Analysis to determine where people pay the most in tobacco and alcohol taxes, as a percentage of their per capita personal income in that state. (You can read our full report on Americans’ tax burdens here.)It's important to note that the numbers below are based not just on the excise or sales tax rates in that state, but also on the population size and how much is purchased per person. So, for example, tobacco excise taxes range from 17 cents per pack in Missouri, to $4.35 per pack in Connecticut and New York, according to 2022 CDC data. And alcohol taxes can be either excise taxes (based on volume of alcohol sold at the wholesale level) or sales taxes (on the retail price of alcohol).Where do people pay the most and least in alcohol tax?
Who pays the most income tax?
The federal government generated $4.9 trillion in revenue in fiscal year 2024, nearly half of which came from taxing people on their incomes. Individual income taxes in FY 2024 totaled $2.4 trillion, or $7,166 per person.
How much money does the US federal government collect?
About $5.26 trillion in fiscal year (FY) 2025. This is about $15,400 per person in the US, however individual contributions vary based on income, spending, and other factors. Government revenue is the total amount of money received from individual and corporate taxes, and other sources that are used to pay for government spending.
Where do people pay the most and least in property taxes?
If you enjoy checking out books from the library, have a child that goes to public school, or feel confident relying on your local fire department or sewer system (among many other services), you are using services that are often partially funded by property taxes.Property taxes are levied on real property, such as homes, commercial buildings, and land, as well as personal property, which can include cars, bank accounts, and stocks and bonds. All states and Washington, DC, collect property taxes.The amount of property tax a person owes, or the property tax rate, depends on the property’s value. And in the US, property tax rates also vary by state, county, and municipality.Using data from the Census Bureau and the Bureau of Economic Analysis, USAFacts examined Americans’ property tax burdens — the proportion of their personal income paid in state and local property taxes. (See the full report on US tax burdens here.)
What is the federal government's budget deficit?
The federal government’s fiscal year (FY) 2026 budget deficit is about $1 trillion as of February. A budget deficit occurs when the federal government spends more money than it brings in through taxes, customs duties, the sale of assets, and other revenues. When the government has a deficit, it borrows money by selling bonds and other securities in order to pay for it, adding to the national debt. A budget surplus, on the other hand, occurs when the government brings in more money than it spends.
Just the Facts about the US economy
How does the government measure the economy? By tracking GDP, unemployment numbers, and the prices people pay for goods and services.
What is the average US tariff rate overall?
About 9.9% in January 2026. The average effective tariff rate shows how much the US collects in customs duties as a percentage of the total value of imported goods. However, imports may have different tariff rates (or none at all) depending on factors like country of origin, product type, trade agreements, and much more.
How did the Inflation Reduction Act of 2022 change corporate taxes?
The Inflation Reduction Act, signed by President Joe Biden on Aug. 16, 2022, changed the way large corporations are taxed. The law imposed a minimum 15% tax on corporations that made $1 billion in average annual earnings over the past three years.Corporations report income in two different ways: book income and taxable income. The 15% minimum tax applies to book income with some adjustments.The minimum book tax's objective is to ensure that businesses pay taxes when making a profit. The tax took effect in 2023. The Joint Committee on Taxation estimated that about 150 corporations would be subject to the minimum tax each year, and that it will result in a gain of $222 billion over 10 years.A Congressional Research Service report estimated that about half the tax revenue would be collected from manufacturing companies (with about 16% from chemical manufacturing) and about 11% each from information and holding companies.
Improving the timeliness, accessibility, and usefulness of tax data
Each year, the Statistics of Income (SOI) Division of the Internal Revenue Service (IRS) publishes statistics on a range of tax topics, including tax rates, tax credits and deductions, corporate taxes, income, and more. By collecting over 160 million individual income tax returns each year in addition to corporate tax returns, W-2s for wage and salary workers, 1099s for self-employment income, 990s from nonprofits, and various other tax forms, the IRS sits on one of the richest sources of data in the United States. However, SOI’s data products are challenging to navigate and can be delayed multiple years. Additionally, SOI does not publish key data that the IRS collects.
How much revenue does the federal government collect from tariffs?
$194.9 billion in FY 2025. This figure reflects revenue from tariffs and other import-related fees, also known as customs duties. Customs duties are taxes and fees paid by US importers and collected by US Customs and Border Protection on goods imported into the country, which generate revenue for the federal government.
How much revenue does sports betting generate?
Betting isn't something that only happens at racetracks or casinos anymore – websites and apps are helping sports betting become a nationwide pastime. And as it grows in popularity, some state coffers are benefiting to the tune of millions in tax revenue from wagers on professional sports.What is sports betting?“Sports gambling” is defined in federal law as “a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.” Basically: placing bets on the outcomes of sporting events or on the performance of particular athletes. Sports betting can happen in person (such as at a casino or sportsbook/off-track), online at websites like FanDuel, and through smartphone apps.Is sports betting legal?Sports betting is not federally prohibited in the United States; its legality depends on individual state laws. State-by-state legality was not always the case: sports betting was effectively banned nationwide in 1992 under the Professional and Amateur Sports Protection Act (PASPA). That law prohibited states from authorizing sports betting, although gambling was allowed to continue in four states that had state-authorized sports betting schemes in place pre-PASPA: Nevada, where all sports betting was already legal and regulated. Delaware, Oregon, and Montana, which were permitted to continue the limited forms of sports betting they already allowed — primarily state-run sports lotteries or parlay-style betting — but weren’t allowed to expand beyond those formats.
How much does the US federal government spend?
About $7.05 trillion in fiscal year (FY) 2025. This averages about $20,600 per person in the US. The amount the government can spend depends on the amount of revenue it collects (e.g., through taxes, customs duties, and other sources). If it has to spend more revenue than it brings in, it borrows the funds, creating debt.