Not if you pay the tax bill on-time. If you try to get away with not paying, or paying after the taxes are due, then you may be subject to interest and penalties.
I have lived under both systems – simultaneously, in fact, since Americans abroad technically have to file a federal tax return (though no taxes to pay on it unless you earn way more than I ever have). I can’t imagine who would prefer our system over the British system. Americans seem to believe that there’s a system that they can beat, essentially nickel-and-diming the government out of taxes. In my humble opinion (I know, wrong forum), that’s like have a system to beat the house in Vegas. And if you’re even slightly out of the ordinary, it gets very complicated very quickly: when I was in the U.K., I had to convert each paycheck to dollars using that payday’s official rate according to the one difficult-to-find approved Federal Reserve Board rate, even though there were no U.S. taxes due.
In a way, the US tax forms can be made more or less complex depending on the taxpayer’s appetite for playing the game. The 1040EZ takes someone about 5 minutes, the 1040A not much more. Neither of which itemize deductions.
Even many taxpayers who itemize don’t have a huge job, if they don’t go looking into every nook and cranny for minor deductions. Many people itemize simply because they are homeowners, and can deduct the mortgage interest and property taxes, which pretty well dwarf any other deductions they might make. The bank sends you a statement about your loan at the end of the year, and it’s simply a matter of filling in that amount. If the mortgage has an escrow account, the property tax will be on that statement as well.
Bottom line is that a great many people simply do their taxes (or have them done) with no data beyond W-2 income statements, 1099s from investments and mortgage info - stuff that arrived arrived in the mail around tax time with words like “important tax information” on the envelope. Not sales receipts, etc. In some cases, a more thorough job of record keeping could have netted them some deductions, but in many cases it truly isn’t worth the hassle.
Right, but a lot of people have employer funded health insurance, so the costs are deferred that way.
It should also be mentioned that every state and municipality has their own tax structure. RNATB already mentioned that Florida has no income tax, but presumably does have sales tax. Montana, by contrast, has a (relatively low and relatively simple) income tax, but has no sales tax. The city where I currently live (Bozeman, MT) is supported entirely by property taxes and various fees and such, none of which end up applying to me, but the city where I grew up (Cleveland, OH) has property taxes (which often end up being abated) plus sales tax, and I think possibly even income tax too. And then there’s Alaska, which effectively has negative tax on its people: The state gets more money than it needs from oil and other natural resources, and ends up paying all of the citizens of the state a dividend every year.
Couple of notes:
Keeve’s summary in post #2 is a good overview – though as is obvious, there’s a lot of details (and the Devil in them!) that it doesn’t address. Withholding – the taking of a portion of one’s taxes direct from the paycheck – also included Social Security taxes (which in turn include Medicare). This is a survivor of the New Deal that is a firm part of how America operates these days – workers pay a tax to support retirees and the disabled, who receive level-of-survival benefits from the government. One becomes eligible to draw Social Security benefits on reaching a certain age having been employed for a certain number of quarters (three-month units) at jobs paying into the SSA system, or if one becomes disabled with the requisite number of quarters. There’s a flexible table that also allows for early reduced benefits on this, so nailing down specifics of what age, how many quarters, etc., would be pointless. This too is adjusted on one’s tax return. Also, couples may elect to pay income tax jointly on their combined incomes.
Very few cities have city income tax – the only one I’m sure of is New York City.
Some states do not collect income tax, some do not have sales tax, some have both.
Property taxes are imposed on real property in all states – and in general they are levies of local governments: counties, cities, towns, villages, and school districts – and in many states, there is also a levy on titled personal property (cars, trucks, boats, etc.). As renters since moving to North Carolina, we’ve never had to pay real property tax directly (though of course our landlady paid taxes on what she rented to us), but we have had to pay a small sum annually against what car we had.
Indeed. 6% base rate, with each county free to add its own surcharge on if it likes.
Very possibly but at least you wouldn’t have to eat peanut butter ::shudder::
Local income taxes are highly dependent on where you live. For example, almost all municipalities in Ohio levy an income tax. Even the tiny village I grew up in took a 1% cut of your income. Some bigger cities take more, I believe I paid 1.5% while living in Columbus. Actually, I just looked it up, it’s 2% now!
In California I don’t have to worry about local income taxes, but the state income tax rate here is higher than the state plus local rate I paid in Ohio. That’s the price for convenience, I guess.
The US system can be confusing, but I don’t think the concept of income tax or taxes on winnings really contribute to that. I think what really makes US taxes confusing to the individual taxpayer is all the very specialized deductions and figuring out if you qualify, and for how much, etc. US tax forms are significantly more complicated than their South African equivalents, especially if you do “unusual” things, such as, uh, owning a home!
I can’t speak for the UK, but South Africa has a PAYE system as well, and to be perfectly honest it felt very similar to the US income tax system: your employee withholds a certain amount every month that is an estimate, and you fill out a form every year with the exact calculation which will tell you if SARS will send you a refund or you’ll have to send in more money. Like the US, I typically got a small refund each year. From the comments in this thread it sounds like the UK do things a little differently.
But many dudes have interest income, maybe some earnings from a 2nd job, or even some investment income. How does your employer know all that?
In the USA, if you have just the one job, no other income, and do not own a home- your withholding from your employer should be just about the right amount.
*Keeve ** * More info: The US income tax is basically on the honor system. One does not have to submit reciepts for the various exempt payments, but the gov’t does occasionally audit random taxpayers, and will want to see those receipts at that time.
Not random, they base the audit on the likelihood the return will be significantly in error, and that expenses will be overstated or income understated.
This is not true in the US. If you owe more than around $3000. You will be charged interest on the money you did not timely pay the government during the year. It is sort of a pain for people who cannot easily know what their income will be for a given year. There are complicated rules for how this is calculated. Investment income is not usually subject to with holdings and so people with large investment income generally need to make quarterly estimated tax payments so at the end of the year they don’t owe a large amount.
I had to look it up, and you are right and I am wrong. I apologize for posting wrong information.
Interest is taxed at source and people paying the basic rate of taxation need do no more. Higher tax payers will need to pay the extra.
Capital gains is virtually a voluntary tax for most people. There are various savings plans that are capital gains-exempt. Plus each person has an annual capital gains tax allowance (currently £10,100) - gains below this level are tax-free. And you used to be able to deduct inflation gains (i.e. index the original cost to today’s levels by adding in the inflation effect), but a bit of research suggests that this is being phased out.
We didn’t go to war over taxation per se, but taxation without representation.
Now the only ones who still pay federal taxes without representation are the 600,000 people who live in our nation’s capital. :rolleyes:
Not just investment income, but self-employed people also. My wife is a writer, and has to make estimated payments every quarter, which we figure out best we can when we do our taxes. You are allowed to adjust payments during the year, but it must come out close at the end, as you said.
People who are self-employed keep more records and receipts than most of us, since many things can be considered business expenses and can come off your income.
One more little complication. In the US the employer matches payments to Social Security made by the worker. If you are self-employed you make the entire payment, which is called, confusingly, a “self-employment tax.” If you work for certain international organizations, like the UN, you must pay it also since they don’t have to make the Social Security payments.
We have municipal bonds, issued by states and local governments, which are income tax exempt on their interest. Market forces make their interest payments lower to make up for this, which is the point, since it reduces the cost of borrowing.
Federal income tax exempt. You usually only avoid state income tax if you invest in your own state’s bonds.
Some states, such as Washington, have no state income tax. They have a sales tax instead. Some states have both an income tax AND a sales tax.
There are also a wide range of taxes on income, sales, property, cigarettes, gasoline, hotel taxes, dining, phones, utilities, etc. that states and localities seem to impliment at will.
And boy, do they have a lot of will!
Of course, there are many individuals who decry “Taxation for something that I personally don’t benefit from, right now” thinking it’s the same idea.
Dangerosa, doesn’t the IRS also collect excise taxes (e.g. on alcoholic beverages)?