If you’re new to the United States, understanding taxes can feel overwhelming. The U.S. tax system is very different from many other countries, and it’s common to feel confused by terms like federal tax, state tax, W-2, 1099, or tax brackets.
This guide explains how taxes work in the USA in plain English—who pays taxes, what types of taxes exist, how much you might owe, and how filing works in 2026.
Whether you’re an immigrant, student, employee, or freelancer, this article will help you understand the basics with confidence.
1. Who Pays Taxes in the USA?
In the U.S., almost everyone who earns income pays taxes, including:
- U.S. citizens
- Permanent residents (green card holders)
- Immigrants on work visas (H-1B, L-1, etc.)
- International students with income
- Freelancers and gig workers
If you earn money in the U.S., you are generally required to report it to the IRS (Internal Revenue Service).
2. Types of Taxes in the USA
The U.S. has a multi-layered tax system, meaning you may pay taxes at more than one level.
Federal Taxes
Collected by the IRS, these apply nationwide.
Includes:
- Federal income tax
- Social Security tax
- Medicare tax
State Taxes
Collected by individual states.
Some states have high taxes, while others have none.
States with NO state income tax (2026):
- Texas
- Florida
- Washington
- Nevada
- Tennessee
- Wyoming
If you live in these states, you only pay federal tax on income.
Local & City Taxes
Some cities and counties also charge income tax.
Examples:
- New York City
- San Francisco
- Philadelphia
Local taxes are usually small but important to factor into your take-home pay.
3. Federal Income Tax Explained (Simple Version)
The U.S. follows a progressive tax system.
That means:
- You are taxed in brackets
- Higher income = higher tax rate only on the extra portion
Example (simplified):
If tax brackets are:
- 10% on first $11,000
- 12% on the next portion
You don’t pay 12% on everything—only on the income above $11,000.
This is one of the most misunderstood parts of U.S. taxes.
Also read : Highest Paying Jobs in the USA Without a Degree (2026 Guide)
4. Payroll Taxes You See on Your Paycheck
If you’re a salaried employee, taxes are automatically deducted.
Typical paycheck deductions:
- Federal income tax
- State income tax (if applicable)
- Social Security (6.2%)
- Medicare (1.45%)
Your employer sends these to the government on your behalf.
5. What Is a W-2 and Why It Matters
A W-2 form is given by your employer every year (usually by January).
It shows:
- Total salary earned
- Total taxes already paid
You use this form to file your tax return.
If you worked multiple jobs, you’ll receive multiple W-2s.
6. Freelancers & Self-Employed: 1099 Taxes
If you’re a freelancer, consultant, or gig worker (Uber, DoorDash, online work), taxes work differently.
You’ll receive a 1099 form, and:
- No taxes are deducted upfront
- You must pay taxes yourself
- You pay self-employment tax (Social Security + Medicare)
Many freelancers make the mistake of not saving for taxes—this can lead to big bills later.
7. Sales Tax in the USA
Sales tax is added when you buy things.
- Varies by state and city
- Ranges from 0% to 10%+
- Not included in price tags
Example:
A $100 item may cost $108 at checkout.
Some states (like Oregon) have no sales tax.
8. Property Tax (If You Own a Home)
If you own property in the U.S., you pay property tax yearly.
- Paid to local governments
- Based on property value
- Used for schools, roads, public services
Renters usually do not pay property tax directly.
9. How to File Taxes in the USA
Tax filing season:
- Starts: January
- Deadline: Usually April 15
You can file:
- Online using tax software
- Through a CPA or tax professional
Common documents needed:
- W-2 or 1099
- Bank interest statements
- Rent or education expenses (if applicable)
10. Tax Refunds: Why You Might Get Money Back
If you paid more tax than required, you get a tax refund.
Refunds often happen because:
- Employer deducted extra tax
- You qualify for tax credits
Refunds are usually deposited directly into your U.S. bank account.
11. Common Tax Mistakes Newcomers Make
- Assuming taxes are optional
- Not filing because income was “small”
- Ignoring state or city taxes
- Missing the filing deadline
- Not keeping documents
Even if you owe zero tax, filing is often still required.
Also read : Minimum Wage in the USA by State (2026 Updated List)
Understanding how taxes work in the USA is essential for managing your money, avoiding penalties, and planning your future. While the system may seem complex at first, it becomes manageable once you understand the basics.
If you’re unsure, filing taxes correctly is always better than skipping them. Over time, taxes become just another routine part of life in the U.S.
