Why do we have to pay taxes anyway? If you remember your history classes, one of the biggest reasons that the 13 colonies wanted to break away from the British government is because of taxation without representation, that is, the people living there had no one representing them in Parliament, but they were taxed on everything as if they were British citizens. So as you can imagine, taxes were a pretty sensitive topic here. Before the American tax system was created in the 1860’s (it was created to finance the Civil War), tariffs (trade taxes on imports and exports) were the main income for the federal and state governments. The Constitution laid out guidelines that direct taxes could only be forced if it was proportionate to each state’s population in the Census (taken every 10 years) and thus, these taxes were considered unconstitutional.
In 1913, the 16th Amendment was signed, stating that individuals and corporations could be taxes based on their income. These taxes provide an income to Congress so that laws could not only be enacted but enforced. Without these taxes, we would also not have money to help those in need or those that have retired. We also couldn’t have the level of protection we do during times of war, because our taxes help fund the military States, on the other hand, take care of roads, run police stations and take care of state land.
How are your taxes determined? The U.S. uses a tax system that is referred to as “progressive,” that is, the more you make, the more you pay. The amount you pay is based on “what you are able to pay.” There are tax scales available to you from the IRS and your tax professional to help you determine how much you are to pay. That’s why the government asks you for all those different numbers on your tax forms! Also, the tax system is referred to as a “voluntary” system. Not because you don’t have to pay taxes at all (you have to, it’s a felony if you don’t), but because you have a large amount of control over how much you pay. You can take credits and deductions to make the amount of taxes you pay less than what you would have paid just claiming your income and nothing more.
Why do I sometimes owe the government money and then other times they owe me money? Basically, because you paid too many taxes. The way our system is set up, you pay taxes on your income throughout the year instead of one lump sum at the end of the year. The taxes they take out through the year are set at a certain amount depending on your status (dependent, independent, independent with dependents, etc). If you calculate how much you should have paid based on your income and your filing status and it’s less than what you did pay, you get a refund. In rare cases, the opposite occurs and you have to pay federal taxes.