No one likes to work for the tax man. But every year, Americans pay a substantial fraction of their earnings in the form of federal taxes to the IRS. One way to think about exactly how much you pay in taxes is to look at your tax bill in terms of how long you have to work each year just to earn the money that goes to the IRS. The Tax Foundation has gone so far as to register a trademark for what it calls Tax Freedom Day, which looks at the overall burden that Americans pay in the aggregate.
Yet you can calculate your own personal day of getting your taxes paid off by looking at your own personal tax situation. This tax calculator can give you a quick estimate of how long you have to work every year just to pay your taxes. Let's look more closely at the calculator and the concept it expresses.
* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.
Figuring out how long you work for the tax man
If taxes were simple, then it would be a trivial exercise to figure out how long you're essentially working for the IRS every year. For instance, if there were a flat tax rate of 10% that applied to all income without any deductions, you'd know that you'd be working 10% of the year, or 36.5 days, to make enough money to pay your taxes for that year.
However, taxes aren't simple. Even when incomes are similar, various deductions give some people tax breaks that others can't get. Progressive tax rates mean that higher-income taxpayers often pay higher tax rates than lower-income taxpayers, but there are also exceptions to that rule for those who get most of their income from tax-favored sources like dividend income or long-term capital gains. As a result, some people work a much larger portion of the year toward paying their tax bill than others.
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2 examples of when you're free from the IRS
As a way of showing how this works, let's take two examples. In the first, consider a single person with no kids who is just starting out and earning an annual salary of $30,000. The federal government will collect not just income taxes, but Social Security and Medicare payroll taxes, as well, which are typically taken directly from one's paycheck. As the calculator says, the total taxes due in this situation are $4,779, and that works out to 58 days out of 365 going toward the IRS. That makes the day on which you stop working toward paying your taxes Feb. 27.
By contrast, take a married couple with two kids and total income of $150,000. For this family, payroll tax withholding will likely be identical in percentage terms, with the possibility of a smaller percentage if one earner makes more than the $127,200 maximum Social Security wage base in 2017, and therefore doesn't have to pay Social Security taxes on the full amount.
However, the income tax portion of the bill is a higher percentage, because these taxpayers are in a higher bracket. As a result, even with the higher income, it will take this family 76 days to pay off $31,364 in tax liability. That works out to a date of March 16, about two-and-a-half weeks later than in the first example.
Keep this in mind
One thing to realize about this calculator is that it only takes into account the income and payroll taxes that you pay at the federal level. Most people also have to pay state income taxes, and some jurisdictions also have additional taxes that you'll want to take into account in calculating how long you work to pay taxes.
It's easy not to think about all the taxes that get taken out of your paycheck. But when you look at your tax bill as a portion of your life you spend working for someone else, it puts the amount you owe into a whole new perspective.
