{"id":24168,"date":"2026-04-22T03:43:37","date_gmt":"2026-04-22T03:43:37","guid":{"rendered":"https:\/\/incredipros.com\/?p=24168"},"modified":"2026-04-22T03:43:38","modified_gmt":"2026-04-22T03:43:38","slug":"what-are-income-taxes-ramsey","status":"publish","type":"post","link":"https:\/\/incredipros.com\/?p=24168","title":{"rendered":"What Are Income Taxes? – Ramsey"},"content":{"rendered":"
\n

Taxes . . . can\u2019t live with \u2019em, can\u2019t live (in America) without \u2019em.\u00a0Whether we like it or not, income taxes are as much a part of American life as baseball and apple pie. And while we groan and grumble as we fill out our tax returns every spring, our tax dollars help pay for a lot of the stuff we sometimes take for granted\u2014like highways, schools and national parks.\n <\/p>\n

\n

Get expert money advice to reach your money goals faster!<\/p>\n<\/p><\/div>\n

Plus, if Uncle Sam doesn\u2019t get his fair share by Tax Day, you\u2019ll probably be hearing from the Tax Man. Trust us, you\u00a0don\u2019t<\/em>\u00a0want that.\n <\/p>\n

It doesn\u2019t look like income taxes are going anywhere anytime soon, so what are they, how do they work, and how do you figure out how much of your hard-earned cash is going to the IRS every year? Let\u2019s take a closer look.\n <\/p>\n

What Is an Income Tax?<\/h2>\n

An income tax is a tax the government collects from money earned by businesses and individuals throughout the year.<\/strong> How much you pay in taxes depends on how much money you make in a year.\n <\/p>\n

In 2024, the IRS collected more than $2.8 trillion in individual income taxes and another $565 billion in income taxes from businesses. Together, those income taxes make up about\u00a0two-thirds<\/em>\u00a0of all the tax money Uncle Sam collects every year.1<\/sup>\u00a0That\u2019s a lot of dough!\n <\/p>\n

Those income taxes are collected by the IRS, and\u00a0then\u00a0your tax dollars\u00a0are used to fund a whole smorgasbord of public services\u2014everything from military spending and education to transportation and medical research. In fact, individual income taxes have been the single largest source of federal revenue since 1950.2<\/sup>\u00a0You\u2019re welcome, Congress!\n <\/p>\n

Where Did the Income Tax Come From?<\/h2>\n

Want someone to blame for your income tax bill this year? Look no further than Abraham Lincoln. Well, sort of.\n <\/p>\n

While \u201cdeath and taxes\u201d might be the only things that are certain in life, it wasn\u2019t always that way\u2014at least not as far as income taxes are concerned. Income taxes as we know them today are actually barely more than 100 years old.\n <\/p>\n

In a controversial move, the first version of the personal income tax in the U.S. was signed into law by Lincoln during the Civil War as a way for the Union to pay for its war effort. Although the tax was repealed once the war was over, the debate over whether an income tax was constitutional or not raged on for decades.\n <\/p>\n

All of that changed in 1913. That was the year the 16th\u00a0Amendment to the U.S. Constitution was ratified, legalizing the government\u2019s right to collect a federal income tax. That same year, Congress passed legislation that made income tax a part of American life. The rest, as they say, is history.\n <\/p>\n

How Do Income Taxes Work?<\/h2>\n

Alright, let\u2019s go back to your high school civics class for just a second. The U.S. tax system is\u00a0progressive<\/em>\u2014that\u2019s just fancy tax talk that means the higher your taxable income, the more you\u2019ll pay in income taxes.\n <\/p>\n

Your\u00a0tax rate<\/em>\u00a0(the percentages of your income that you pay in taxes) is based on which\u00a0tax bracket<\/em>\u00a0(income range) you\u2019re in. Here are the tax rates and tax brackets for the 2025 tax year.3<\/sup>\n <\/p>\n

2025 Federal Income Tax Brackets and Rates for Taxable Income<\/strong>\n <\/p>\n\n\n\n\n\n\n\n\n\n\n
\n

Tax Rate\u00a0<\/strong>\n <\/p>\n<\/td>\n

\n

Single Filer\u00a0<\/strong>\n <\/p>\n<\/td>\n

\n

Married, Filing Jointly<\/strong>\u00a0\n <\/p>\n<\/td>\n

\n

Married, Filing Separately\u00a0<\/strong>\n <\/p>\n<\/td>\n

\n

Head of Household\u00a0<\/strong>\n <\/p>\n<\/td>\n<\/tr>\n

\n

10%\u00a0\n <\/p>\n<\/td>\n

\n

$0\u201311,925\u00a0\n <\/p>\n<\/td>\n

\n

$0\u201323,850\u00a0\n <\/p>\n<\/td>\n

\n

$0\u201311,925\u00a0\n <\/p>\n<\/td>\n

\n

$0\u201317,000\u00a0\n <\/p>\n<\/td>\n<\/tr>\n

\n

12%\u00a0\n <\/p>\n<\/td>\n

\n

$11,925\u201348,475\u00a0\n <\/p>\n<\/td>\n

\n

$23,850\u201396,950\u00a0\n <\/p>\n<\/td>\n

\n

$11,925\u201348,475\u00a0\n <\/p>\n<\/td>\n

\n

$17,000\u201364,850\u00a0\n <\/p>\n<\/td>\n<\/tr>\n

\n

22%\u00a0\n <\/p>\n<\/td>\n

\n

$48,475\u2013103,350\u00a0\n <\/p>\n<\/td>\n

\n

$96,950\u2013206,700\u00a0\n <\/p>\n<\/td>\n

\n

$48,475\u2013103,350\u00a0\n <\/p>\n<\/td>\n

\n

$64,850\u2013103,350\u00a0\n <\/p>\n<\/td>\n<\/tr>\n

\n

24%\u00a0\n <\/p>\n<\/td>\n

\n

$103,350\u2013197,300\u00a0\n <\/p>\n<\/td>\n

\n

$206,700\u2013394,600\u00a0\n <\/p>\n<\/td>\n

\n

$103,350\u2013197,300\u00a0\n <\/p>\n<\/td>\n

\n

$103,350\u2013197,300\u00a0\n <\/p>\n<\/td>\n<\/tr>\n

\n

32%\u00a0\n <\/p>\n<\/td>\n

\n

$197,300\u2013250,525\u00a0\n <\/p>\n<\/td>\n

\n

$394,600\u2013501,050\u00a0\n <\/p>\n<\/td>\n

\n

$197,300\u2013250,525\u00a0\n <\/p>\n<\/td>\n

\n

$197,300\u2013250,500\u00a0\n <\/p>\n<\/td>\n<\/tr>\n

\n

35%\u00a0\n <\/p>\n<\/td>\n

\n

$250,525\u2013626,350\u00a0\n <\/p>\n<\/td>\n

\n

$501,050\u2013751,600\u00a0\n <\/p>\n<\/td>\n

\n

$250,525\u2013375,800\u00a0\n <\/p>\n<\/td>\n

\n

$250,500\u2013626,350\u00a0\n <\/p>\n<\/td>\n<\/tr>\n

\n

37%\u00a0\n <\/p>\n<\/td>\n

\n

Over $626,350\u00a0\n <\/p>\n<\/td>\n

\n

Over $751,600\u00a0\n <\/p>\n<\/td>\n

\n

Over $375,800\u00a0\n <\/p>\n<\/td>\n

\n

Over $626,350\n <\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Let’s\u00a0say you\u2019re married filing jointly and your household\u00a0taxable income\u00a0(the portion of your total income that can be taxed) is $120,000. That puts you in the 22% tax bracket. But that doesn\u2019t mean\u00a0all\u00a0<\/em>of your income is taxed at 22%.\n <\/p>\n

That\u2019s because U.S. tax rates are\u00a0marginal,\u00a0<\/em>which just means that each tax rate applies to only part of your income. Some of your income is taxed at 10%, another piece at 12%, and so on depending on how high your income is.\n <\/p>\n

So, for this example, after all the damage is done, you and your spouse owe $16,228 in taxes for the 2025 tax year. Here\u2019s how the numbers break down:\n <\/p>\n

Total Calculation for $120,000 Taxable Income (Married Filing Jointly)<\/strong>\n <\/p>\n\n\n\n\n\n\n
\n

Tax Bracket<\/strong>\n <\/p>\n<\/td>\n

\n

Income x Bracket %<\/strong>\n <\/p>\n<\/td>\n

\n

Taxes Due<\/strong>\n <\/p>\n<\/td>\n<\/tr>\n

\n

10%\n <\/p>\n<\/td>\n

\n

$23,850 x 10%\n <\/p>\n<\/td>\n

\n

= $2,385\n <\/p>\n<\/td>\n<\/tr>\n

\n

12%\n <\/p>\n<\/td>\n

\n

($96,950\u00a0– $23,850) x 12%\n <\/p>\n<\/td>\n

\n

= $8,772\n <\/p>\n<\/td>\n<\/tr>\n

\n

22%\n <\/p>\n<\/td>\n

\n

($120,000 – $96,950) x 22%\n <\/p>\n<\/td>\n

\n

= $5,071\n <\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Total Taxes Owed<\/strong>\u00a0= $16,228\n <\/p>\n

If you have questions about how much\u00a0you\u00a0<\/em>owe in income taxes this tax season, you might want to\u00a0get in touch with a trustworthy tax advisor\u00a0who can help you figure out those numbers.\n <\/p>\n

How Are Income Taxes Collected?<\/h2>\n

If you\u2019re like most American employees with a salary, health benefits and a 401(k), your employer probably sets aside some money from your paycheck for income taxes before it hits your bank account (those are called\u00a0tax withholdings).\n <\/p>\n

Remember that W-4 tax form you filled out when you first got hired? Your employer uses the information you put on that form to figure out how much to withhold from each paycheck.\n <\/p>\n

So, really, you\u2019ve been paying the government your fair share in taxes for most of the year. (You can check your last paycheck to see just how much they\u2019ve been sending to the IRS.)\n <\/p>\n

When you fill out your\u00a0tax return\u00a0and file it with the IRS in the spring, you\u2019ll find out if you still owe the government anything in taxes\u00a0or\u00a0<\/em>if you overpaid and Uncle Sam owes you a tax refund.\u00a0\u00a0\n <\/p>\n

Sounds simple enough, right? But what if you\u2019re self-employed (think freelancers, independent contractors and small-business owners)? You\u2019ll probably pay your income taxes through\u00a0quarterly taxes\u2014or estimated taxes\u2014that you file with the IRS every three months. If you\u2019re self-employed, you\u2019ll want a tax pro who can help you throughout the year to answer all your tax questions! \u00a0\n <\/p>\n

What Are the Different Types of Income Tax?<\/h2>\n

We\u2019ve been talking a lot about federal income taxes, but there\u2019s a good chance those aren\u2019t the only type\u00a0of income taxes you have to worry about. For example, bonus income\u00a0and income from unemployment are taxable too, so you\u2019re going to have to give Uncle Sam his due.\n <\/p>\n

Plus, depending on where you live and what kind of work you do, you might have to pay income taxes at the state level or at the corporate tax rate. Even some local governments want to get their hands on your paycheck.\n <\/p>\n

Let\u2019s take a deeper look at some of the different types of income taxes you might run into during tax season.\n <\/p>\n

State Income Taxes<\/h3>\n

Uncle Sam isn\u2019t the only one who wants a piece of your income. Like the federal government, most states also have their own income tax system.\u00a0Yuck.<\/em>\n <\/p>\n

Where does your state income tax money go? More than half of state tax revenues are used to fund education and health care, in addition to other services like transportation, public assistance and prisons.4<\/sup>\n <\/p>\n

Now, each state falls into one of three different categories\u2014states with\u00a0progressive income taxes<\/em>, states with a\u00a0flat income tax<\/em>\u00a0and states with\u00a0no income tax<\/em>\u00a0at all. Let\u2019s dive into each one.\n <\/p>\n

1. States With Progressive Income Taxes<\/strong>\n <\/p>\n

Just like at the federal level, most states have a progressive tax structure with marginal tax rates. Again, all that boils down to is this:\u00a0The more you earn, the more you\u2019ll be taxed.\u00a0<\/em>\n <\/p>\n

Each state sets their own tax rates and tax brackets, so if you live in one of the 32 states with a progressive tax structure, pay attention to which tax bracket and tax rates you fall into for your state.\n <\/p>\n

If you live in Hawaii, you could fall into one of\u00a012 different tax brackets\u00a0<\/em>with tax rates between 1.4% and 11%. But Louisiana has just three tax brackets with tax rates between 1.85% and 4.25%. You might want to think about that before you\u00a0move to a new state!5<\/sup>\n <\/p>\n

2. States With Flat Income Taxes<\/strong>\n <\/p>\n

There are 14 states that keep things simple.\u00a0Really simple.<\/em>\u00a0They have a\u00a0flat tax rate\u00ad<\/em>.<\/sup><\/em>6<\/sup><\/em>\u00a0<\/em>That means it doesn\u2019t matter how much or how little you earn\u2014you\u2019re taxed at the same rate as everyone else.\n <\/p>\n

Let\u2019s take a look at Kentucky, which has a flat 4% tax on income. If you made $50,000 last year and your neighbor brought in $500,000, both of you will be taxed 4% by the state of Kentucky.7<\/sup>\n <\/p>\n

Here are the 14 states that have a flat income tax structure:\n <\/p>\n