Five Tax Bills in One Household
Picture the Okafor family: two parents who each earn $120,000, living in a $750,000 house in a state that taxes income. At the end of a year, one of them, Tunde, decides to find out what the family pays in tax. He expects one number.
He finds five.
What the Okafor family pays in tax in a year (an illustration)
| Tax | What it is | About a year |
|---|---|---|
| Federal income tax | Taken from pay, settled at filing | $35,000 |
| State income tax | Same, for the state | $11,000 |
| Payroll taxes | Social Security and Medicare, deducted from each paycheck | $18,000 |
| Property tax | Billed on the house, often through the mortgage | $11,000 |
| Sales tax | Added at the register | $3,500 |
| Total | $78,500 |
$78,500 on $240,000 is almost a third of what the family earns.
Most of us argue about the income tax. For this family it is a little more than half of the total. The rest arrives in smaller pieces: from a paycheck, from the county, at the register.
Tunde notices how each one arrives. The payroll tax leaves before the paycheck does. The sales tax is a few cents at a time. The property tax is paid with the mortgage. Taxes that come in small pieces are hard to add up, so most households never do.
You might say every country has taxes, and that is true. A move changes some lines a lot and others little. A place with no state income tax removes one line. A place with lower property rates shrinks another. Payroll taxes may continue if you still work for an employer back home. Which lines change depends on where you go and how you earn.
For a retiree, the lines look different. There is no payroll tax, because there is no paycheck. Interest and other investment income is taxed under the rules that apply to it. In our calculator, money in American inflation-protected bonds is taxed at the American rate, and money in a country’s own bonds is taxed at that country’s rate.
These figures are an illustration, and every state, county and household differs.
Nobody in this is a villain. Each tax pays for something: schools, roads, pensions, health care. People disagree about how much, and that is a conversation for another place. The aim here is only to add them up.
You could gather last year’s paperwork and add up five numbers: federal income tax, state income tax, payroll tax, property tax and sales tax. Sales tax can be estimated by multiplying what you spend by your local rate. Then you could divide the total by your income.
What share of your income did your five add up to? Tell us in the comments, if you are willing. Someone reading may be about to add theirs.
Tell us in the comments