Essential Guide to Taxes in the United States (2023)

Written by: Rocio Somoza
Last Updated by Rocio Somoza: February 24, 2023
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Taxes in the United States

If you are thinking of moving to the United States, it is important that you know what taxes you will have to pay. In this article we explain everything you need to know about taxes in the United States, including the different types of taxes and how to correctly file them with the Internal Revenue Service. Be sure to pay special attention to this essential guide.


What are taxes in the United States?

In the United States, taxes are the taxes that must be paid to the federal government as well as the state, county, and/or city in which you live.

Taxes are progressive, meaning that different rates are applied to taxpayers depending on their income level. Those who earn more are taxed at higher rates, while those who earn less are taxed at lower rates. This is in the interest of social equality, as it allows the less fortunate to maintain a higher level of after-tax income.

taxes in the united states

How do taxes work in the United States?

Taxes in this country are determined on the basis of a graduated system.

Not only does a person’s salary count as income, but also any money earned. In other words, if a person earns money from renting a real estate property, this money is considered as income. For this reason, all income will be considered when calculating the taxes to be paid.

What are the differences between state and federal taxes?

Federal income taxes are levied by the U.S. government on U.S. residents who work or own businesses. It is determined based on the amount of money earned each tax year; i.e., the amount of tax is based on the level of income.

The Internal Revenue Service (IRS) is in charge of collecting these taxes through a progressive system.

This tax is levied on individuals as well as on other forms of income, such as corporations.

Federal taxes are not levied in the state where the individual lives, but where the individual works.

On the other hand, state taxes depend on whether or not each state decides to levy them. These taxes are also collected through a progressive system, with the exception of some states that charge a single rate, regardless of the income level of each person. These states are Colorado, Pennsylvania, Illinois, Utah, Massachusetts, Michigan, North Carolina, and Indiana.

In addition, there are seven states that do not charge state taxes, these being Washington, Florida, Texas, Alaska, Wyoming, Nevada, and South Dakota.

Does everyone have to pay taxes in the United States?

Not everyone residing in the United States must pay taxes. There are several factors that determine whether or not they must pay taxes.

The factors to take into account are: age, marital status, income, and whether the person is a dependent of another taxpayer.

In which U.S. states do you pay more taxes?

According to a report issued by the Tax Foundation, the highest tax rates are in the following states:

  • New York: 15.9%
  • Connecticut: 15.4%
  • Hawaii: 14.1%
  • Vermont: 13.6%
  • California: 13.5%
  • New Jersey: 13.2%
  • Illinois: 12.9%
  • Virginia: 12.5%
  • Virginia: 12.5%
  • Delaware: 12.4%
  • Maine: 12.4%

In which U.S. states do you pay the least taxes?

According to a report issued by the Tax Foundation, the lowest tax rates are in the following states:

  • Alaska: 4.6%
  • Wyoming: 7.5%
  • Tennessee: 7.6%
  • South Dakota: 8.4%
  • Texas: 8.6%
  • North Dakota: 8.8%
  • Georgia: 8.9%
  • South Carolina: 8.9%
  • Oklahoma: 9%

It is worth noting that the vast majority of states with lower tax rates coincide with states that do not charge state taxes.

taxes in the united states

Tax Returns: When to File

U.S. residents must file a tax return each year. This filing consists of the computation of total income for the last completed tax year, and the payment of this income to the government.

The tax return must be filed with the IRS on government forms by April 15 of each year. April 15 is also the last day to pay these taxes.

However, there are some exceptions where the Internal Revenue Service (IRS) decides to extend the tax filing date due to specific emergencies or administrative issues.

Also, if someone does not arrive on time to file or pay their return on time for personal reasons, the IRS may grant extensions. The extension of time is requested through form 4868. It is possible to request another extension in addition to this but important reasons for this new extension must be presented to the Internal Revenue Service in order for it to be granted.

It is important to note that while it is possible to request extensions, this results in interest to be paid based on the federal tax owed. Interest rates vary between 0.5% and 1%.

Balance at Time of Filing

Commonly, at the time of filing the tax return, individuals have already made the corresponding tax payments. The way this happens is through a tax deduction that is taken from wages before people get paid. Workers do not see this money but they can see in detail the amount of money taken out on their pay stubs.

Likewise, if when filing the tax return it is shown that an amount greater than the amount due to the citizen has already been paid, the government makes a refund to that person.


It is important to clarify that if a non-U.S. citizen files a fraudulent tax return, i.e., one that does not show the truth, he/she may be deported.

W2 Form

At the end of the tax year, taxpayers who are employees and receive salary payments from a company receive a W2 form (Wage and Tax Statement) that allows them to know their total income and tax withholding. In other words, this form specifies, in addition to the salary, the taxes paid by the employer for the employee. In this form, taxpayers make the calculation of earnings and, once completed, it is submitted to the Internal Revenue Service. After this return is filed, the 1040 form can be used to file the income tax return.

Other forms: 1099 and 1040

On the other hand, in the case of those taxpayers who do not work for a company but are self-employed and have obtained income of more than $600 in the year, they must file their income tax return with the Internal Revenue Service using another form. These persons will use the 1099 form, which is previously prepared by the companies or persons to whom the taxpayer has provided work or services in order to know the total amount to be reported in taxes.

Finally, in the event that the person does not have the W2 or 1099 tax forms, he/she can file the tax return from the 1040 form, completing Schedule C of the same.

It is also possible to file the tax return if the taxpayer receives cash income.

Sharing Economy Workers: Filing Taxes

The sharing economy is an activity from which individuals earn income by providing work, services, or goods on demand. In addition, they are generally performed digitally through apps or websites.

These workers must file taxes only if their income is: 

  • From part-time, temporary, or secondary work.
  • Not reported on other forms such as W2s or 1099s paid.
  • That is, collected in any form, whether cash, property, goods, or virtual currency.
taxes in the united states

Relief Program

Additionally, the government has a program called Volunteer Income Tax Assistance (VITA) that offers free help to those who need it to prepare their tax return. This program is available to individuals with incomes of $54,000 or less. People with disabilities or limited English proficiency are also eligible, as assistance is available in Spanish, Chinese, and other additional languages.

Do all foreign nationals have to pay taxes?

There are two tests used by the Internal Revenue Service to assess the tax status of foreign nationals. The two tests used are the green card test and the substantial presence test.

The green card test consists of possessing a green card issued by the U.S. Citizenship and Immigration Services. This card allows the alien to reside legally in the country, under the category of resident alien.

The substantial presence test determines that a person has met the physical presence requirement if he or she has spent a minimum of 31 days in the country during the current year and a total of 183 days in the last 3 tax years. However, there are a small number of exceptions in which days physically present in the country are not taken into account for this calculation.

If individuals meet the requirements of either of the two tests used by the IRS, they are considered resident aliens for tax purposes. If they do not meet the requirements, they are considered nonresident aliens and are not required to pay U.S. taxes.

As legal residents of the United States, resident aliens must report all income earned on tax returns, regardless of whether it was earned within the United States or in another country.

Non-resident aliens who have income connected to the United States must also pay taxes, but only on money earned in the United States.

Is it possible to file taxes without a SSN?

It is essential to use a taxpayer identification number when filing taxes in the United States.

However, there are two possible identification options:

  • Social Security Number (SSN).
  • Individual Taxpayer Identification Number (ITIN). It is possible to use ITINs if the taxpayer does not qualify for an SSN. ITINs are provided for federal tax filing purposes only.

It should be noted that an ITIN does not authorize individuals to work in the United States, nor does it entitle them to receive social security benefits. It also does not entitle individuals to earn U.S. income tax credits.

How are taxes paid?

Taxes in the United States can be paid electronically (or e-file) by debit or credit card at the time of filing the tax return through the Internet. Commercial tax preparation software is used for this option.

When filing the tax return via e-file, the tax refund (if applicable) is usually made within 3 weeks from the date the return is issued.

Taxes can also be prepared and filed free of charge using software called Free File.

In addition, it is possible to issue payment by check sent by regular mail or to pay by phone.

It is important to always make payments through the official means of the Internal Revenue Service.

taxes in the united states

What is the fastest way to receive refunds?

If when filing the tax return, the taxpayer has money in their favor because they have paid more taxes than they were required to, they can obtain a refund.

For this, at the time of filing the tax return, it is important to choose the direct deposit method since this is the fastest method in which the taxpayer can obtain the refund of their taxes. This refund is free and secure.

In addition, if desired, it is possible to request that the refund of the money be made by dividing the refund in up to three different bank accounts.

Not only is the direct deposit method recommended because of its speed, but also because it is the safest method as there is no risk of theft or loss of the refund check.


Taxes in the United States are a complicated issue to which it is important to pay due attention. That is why it is important to understand them in order to avoid problems with the Internal Revenue Service.

With these facts we have provided you with, there should be no problem for you to pay your taxes correctly and avoid future problems.