Are all your taxes deducted automatically from your paycheck?

Question

I'm about to move to the US and would like to understand how it works. Which are the taxes ANYONE has to pay no matter what? What are the LEAST expensive states? WHAT DOES "TAX-DEDUCTABLE" actually mean.... quick explanation for a blonde, thanks =)

Answer 1

We have to pay: Federal Withholding(@17.5% for single individual), FICA-Medicare (1.45%), FICA- Social Security (6.2%), state's income tax, local taxes (depending on the city you move to). If you buy property here, property taxes. No one will say least expensive state, more like the most expensive states - NY, CT, CA. Tax-deductable means you can deduct it on your taxes.

We file our tax return for 2006 by April 17, 2007. We've paid in our taxes from our employment through the course of the year, but there are deductions we can itemize for on the annual returns, such as child care, dependents (spouse that doesn't work, kids or elderly parents), owning a home, overpayment of federal withholding tax from your paycheck, education credits, out-of-pocket medical expenses over $7500, charitable contributions over $500, Job expenses that were not reimbursed by the employer.

Having a licensed CPA prepare your tax return is not that expensive, you may want to consider finding one the first time you need to file.

from one blonde to another.

Answer 2

If you're coming from the UK, our scheme for wage earners is fairly similar to the PAYE scheme there. Some key differences:

Mortgage relief is claimed when you file your return, normally due on April 15th, not through the lender.

Filing a tax return (settling up) is mandatory if your income exceeds certain levels. You can't just "walk away" as you can with PAYE.

Most states also have an income tax, just like the Federal government does. States that don't have income taxes make it up somewhere else -- higher sales taxes (similar to VAT) or real estate and personal property taxes.

No Council Tax or rates, but if you own real property (mortgaged or otherwise) you will pay property taxes based on the value.

Tenants virtually never pay rates (property taxes), it's included in the rents and paid by the landlord.

The east and west coastal states tend to be the most expensive. Southern states tend to be less expensive than northern states (oddly, considering the harsher winters up north though heating costs certainly are part of that) and the Mid-western states tend to be the lowest. Cost of living in major cities is typically higher than smaller cities and towns.