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 do your federal taxes pay for?
The federal government’s biggest spending priorities in fiscal year 2025 were $1.6 trillion on Social Security, $1.3 trillion on national defense, and $875.4 billion on Medicaid and CHIP. How much of that came from your taxes? The Microsoft AI for Good Lab used budget data from the Office of Management and Budget (OMB) analyzed by USAFacts, to estimate how your tax dollars are allocated across $6.8 trillion in federal spending.Some things to note before you begin:We know taxes are complicated. This calculator estimates the employee portion of payroll taxes and income taxes only. It does not account for tax credits, itemized deductions, or other adjustments that affect individual tax bills.The calculator assumes all income is from wages, even though some types of income, like investment income, are subject to different tax rates.Federal spending is complicated too. (For a breakdown of how taxes are allocated, see the calculator’s methodology.)The calculator does not retain any personal information.Click the line items in the receipt for even more spending details.
How much do you pay in gas taxes?
US gas prices increased by $1.11 per gallon — about 37% — from March to April while the global economy responded to the limited crude oil supply passing through the Strait of Hormuz. The average per-gallon price rose from $3.02 on March 2 to $4.12 on April 27, according to data from the Energy Information Administration (EIA). But prices vary broadly by state. Californians, who are paying $5.79 at the average station as of the latest data, may not feel much sympathy for their Texan counterparts, who pay $3.66 (even after an increase of over a dollar locally, as well). Gas prices in California haven’t been that low in over five years. So why the regional differences? The EIA says it’s everything from a region’s proximity to the supply to competition among local gas stations. Some factors — like supply disruptions — can be out of government’s (and even industry’s) control. But other factors are more directly in the hands of regional governments. Perhaps most directly: taxes. How do gas taxes work? When you fill up at the pump, your purchase is subject to multiple layers of taxation. A little over half of what you pay per gallon of gas covers the cost of the crude oil. Another 20% is refinery costs, and 11% is marketing and distribution. The remaining 18% is tax. Federal gas taxesThe federal government imposes a flat tax on all gas purchases. Congress raised this to 18.4 cents per gallon in 1993 and it hasn’t changed since. State gas taxesEvery state government and Washington, DC, levy their own per-gallon gasoline excise taxes. On top of any volume-based taxes, most states have general sales taxes that add some percentage of all purchases, including gas. Finally, state legislation sometimes includes additional fees for storage, inspection, environmental cleanup, or other considerations.
Who doesn’t pay federal income taxes?
In 2023, 30.5% 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. Here’s how those changes have affected taxes, and which provisions have been made permanent or expanded by the passage of the One Big Beautiful Bill Act in July 2025.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 2023, the average effective federal income tax rate had risen to 13.8%: a 0.8 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.
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.
Who pays the most income tax?
The federal government generated $5.26 trillion in revenue in fiscal year 2025, half of which came from taxing people on their incomes. Individual income taxes in FY 2025 totaled $2.66 trillion, or $7,771 per person.
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
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 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.
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?
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.)
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.
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.
What is the federal government's budget deficit?
The federal government’s fiscal year (FY) 2026 budget deficit is about $953.6 billion as of April. 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.
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 do marijuana laws differ between states?
While marijuana remains illegal at the federal level per the 1970 Controlled Substances Act (CSA), the US has become a patchwork of state-determined laws pertaining to the drug. Some states have legalized recreational marijuana, others allow medicinal use and/or CBD oil. A few states have decriminalized the plant, and a handful follow the federal guidelines. What does marijuana legalization mean?In the United States, marijuana legalization refers to the process of making marijuana use, possession, and sales legal under certain conditions. Adults in states where the drug is legal can use it for both medical and recreational purposes, following state laws. Legalization allows for regulated sales of products that contain cannabidiol (CBD) and delta-9-tetrahydrocannabinol (THC). Medical cannabis laws also fall under this category, permitting patients with conditions such as chronic pain, multiple sclerosis, insomnia, and depression to use the substances for treatment. Since marijuana remains federally classified as an illegal drug, state legalization has many implications on federal income taxes filed by dispensaries, as well as the cross-border sale and transportation of cannabis products.
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.