What is the difference between Federal and State Taxes?
In essence, Federal Income Taxis collected by the US Government to pay all US Government related bills. All US citizens are subject to this tax for their worldwide income, which non-resident aliens are taxed on their US source income. The laws are created by legislators, while the IRS is in charge of enforcing it.
State Income Tax, on the other hand, is used by individual state governments to pay their respective bills. This applies to residents of the state
Interestingly, not all states have income taxes. As of today, there are seven states that impose no income tax - Wyoming, Washington, Texas, South Dakota, Nevada, Florida and Alaska.
How does the tax system work?
In the US, we are taxed on a Progressive Tax System.Here, the more money you may, the more taxes you pay. The brackets range from 10, 15, 25, 28, 33, 35 and 39.6%. So for the first (for example) $10,000 you make, you pay 10% of that to taxes. Then if you make $5,000 more (total of $15,000), you pay 15% of that $5,000, and so on.
In many banking systems and companies, your tax is being withheld upon paycheck. Once April rolls around and you file a tax report to the IRS, they'll calculate how much tax you should have paid. If you overpaid for that year, you will receive a tax refund.
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