What Is Your Effective Tax Rate?

As the next elections grow nearer, we are hearing more and more about how we need to bring our deficit into balance not only on the federal level, but also on the state and local levels. So the question has come to mind, what is your effective tax rate and how do you feel about it? Effective tax rate you say and what is an effective tax rate? Simply said, if you added all of the fees, taxes, and charges that your government charges you each year, and divide that by the total income you earn, the percentage you end up with would be your effective tax rate. Have you tried it before? Do you really know how much you actually pay in taxes each year? You really ought to know, for information is power and with that power you can work not only harder, but smarter towards a better life!

So let’s begin the exercise using the income and taxes accrued by my family. Though we don’t make much, we do pay a bit in taxes each year. As of last year we earned, through our various jobs, etc a total of $ 36,000. Yes, we will do a bit of rounding here as it makes things easier to understand. Though we have rentals, they are a family business that we derive no income from of any type. Though for this exercise, you would include any and all sources such as dividends, interest, etc. Do not include company reimbursements for expenses as part of your job.

Totals to date:

Income                        $ 36,000

Then there are the taxes that we pay each year to the local, county, state and federal governments. These are lengthy in their list, but must be listed so bear with me. Also, any time you are mandated to spend money by any government agency that would be a tax. So if your state mandates that you buy car or health insurance under penalty of law, then you are paying a tax. I am not making a judgment call as to whether or not it is a good tax, but only if it is a tax. Anytime you are mandated to buy something from a private party, it is not a tax. So if you have a mortgage and they require you to buy fire and flood insurance that is not a tax. You have a choice there and there is no penalty under the law that will be enforced by the government.

So let’s begin listing the taxes that we pay each year. I will not detail each tax as it simply would be too much detail, but I will instead give a grand total for all of the taxes.

Federal Income Tax

Federal Social Security Tax

Federal Medicare Tax

Federal Gasoline Tax

Georgia State Sales Tax

Georgia Gasoline Tax

Georgia Car Insurance

Georgia Income Tax

Georgia Alcohol Tax

Georgia Car Registration

Georgia Car Tax                             

Georgia Property Taxes

Georgia Utility Taxes

County Sales Tax

County Special Assessment

The list can go on and on, for most people, but in our case we try to be frugal, so many of the taxes that you would pay such as license fees for your animals, etc won’t appear on our list. Over all, we spend less than most and watch our deductions, so that we even out at the end of the year, so no refund, but that leaves us with our taxes costing just under $10,000 each year or a total of $ 9700 if everything is added up.

Totals to date:

Income $ 36,000

Taxes      $ 9,700

Effective tax rate 26.9 %

So as you can see a couple who earn less than the United States median average is still paying a significant amount of taxes each year. So why don’t you spend a little time and determine exactly what your effective tax rate really is. It may just surprise you!

Enjoy!