The Essential Tax Guide - 2023 Edition

Progressive vs. Regressive vs. Flat Taxes Under a progressive tax code, people who make more money are taxed at a higher rate than those who make less money. For example, if people who make $10,000 per year have to pay 10% of their income in taxes, while those who make $50,000 per year have to pay 20%, and those who make $100,000 per year have to pay 30%, that’s a progressive tax. A regressive tax is the opposite of a progressive tax: People who make less money are taxed at a proportionately higher rate than people who make more money. Under a regressive tax code, someone making $100,000 per year would owe a smaller percentage of their income in taxes than someone making $10,000. Meanwhile, a flat tax—say, 10% of…

Income Tax vs. Other Taxes In addition to federal income taxes, most states—though not all—charge an additional state income tax, as do some municipalities and school districts. Here are some common taxes you might pay: Payroll Taxes These taxes, also known as “employment taxes,” are automatically taken from your paycheck to pay for Social Security and Medicare. For the 2022 tax year, workers had to pay 6.2% of their first $147,000 of earnings toward Social Security, and 1.45% toward Medicare. Employers are required to match these amounts in both cases. Sales Taxes Sales taxes are collected as a percentage of a purchase of goods or services. They are charged only on the state and/or local level, and the tax rate varies from place to place. Some states have no sales…

Tax Credits Tax credits directly reduce the amount you owe—a $500 credit means you pay $500 less in taxes. Credits are typically offered to help offset certain expenses, including buying a first home, child care costs, adopting a child, caring for elderly parents, or energy-efficiency projects, such as installing solar panels. Business owners can also take advantage of tax credits. Tax credits are less common than tax deductions. They are worth varying amounts, and whether or not you qualify will be based on factors such as filing status, age, employment and education. There are two main types of tax credits, which operate in different ways: Refundable Tax Credits Are the Most Versatile Credits You’ll Encounter They are subtracted in full from the amount of taxes that you owe after deductions,…

In 2021, an astonishing 47.8 million people left their jobs, marking the start of what experts call the Great Resignation. This continued into 2022 with millions of Americans leaving their jobs every month. This workforce exodus had a number of triggers. Some found greener pastures in better jobs. Some retired early, and others moved into more of a caregiver role at home as the COVID-19 pandemic forced children to homeschool, for example. Whatever the reason for a job change, career shifts can have a big impact on your taxes. So if you find yourself among the millions who’ve switched jobs, left the workforce, or you’re even thinking about a move, get familiar with these five tax considerations. Higher Salary If you’ve moved to a better paying job, your new salary…

Though the U.S. economy has regained the 25 million jobs it lost in the pandemic, in most states employment still trails behind pre-pandemic levels. Many have turned to unemployment benefits to help them make ends meet. Unemployment checks can be a lifeline in difficult times, but taxpayers are still expected to pay some of that money back to the government in the form of taxes. Planning ahead can save time and money. Making Payments Unemployment benefits paid in 2020 were treated differently for tax purposes due to the American Rescue Plan, which was signed into law in March 2021. That excluded qualifying individuals (and each spouse if married) from paying taxes on up to $10,200 of unemployment benefits. But now we’re back to business as usual. If you received unemployment…

Accounting for Inflation Inflation reached a 40-year high in the United States in 2022, with increases in the cost of everything from groceries to gasoline. In October, the Bureau of Labor Statistics announced that the Consumer Price Index, an average price of a basket of goods and services, was up 7.7% over the year before. That means that on average, the cost of what consumers bought for $100 in September 2021 would inflate to $107.70 in October 2022. By comparison, economists expect to see an annual increase of about 3% in the average price of goods and services under ordinary circumstances. Inflation is a concern domestically and in economies around the world. Global inflation is expected to rise 8.8% in 2022, a significant increase over the 4.7% global inflation rate…