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Course: Financial Literacy > Unit 10
Lesson 1: What are taxes?Taxes intro
Taxes are money that people and businesses pay to the government, and this money is used to help everyone by providing things like roads, schools, and health care. By paying taxes, we all help make our communities better and support important services. Created by Sal Khan.
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- Does the tax rate differ in different parts of north America.(1 vote)
- Federal taxes are uniform.
State taxes differ from state to state.(2 votes)
- what is write offs(1 vote)
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Video transcript
- So a lot of folks are familiar with government doing things
like building roads and bridges or providing schooling or
parks or at the federal level national programs, or say, the military. And the natural question is how does the government
pay for all of this? And the simple answer is
it's primarily through taxes. There's other sources of revenue as well, but we're thinking on a local level. Taxes are things like sales tax. You buy something, you
pay a little bit extra. That extra percentage does not go to the retailer or whoever's
providing the service. It would go to the government. There're things like property tax, especially at a local level where if you own property every year, that property generally is
assessed what the value is and you have to pay a
percentage of that value to traditionally the local
government on an annual basis. And then when you go to the
state and the federal level, probably the most significant tax, in fact, the most significant
tax is income tax, which is a tax on people's income. Now, income tax, you can broadly view it as a tax on a percentage of your income, and it can be significant depending on how much money you make. It's not uncommon for, between state and federal
taxes for people to, and things like social
security tax, et cetera, for 20, 30, 40% or more of someone's income to go to
these collective income taxes. So it is a significant
part of folks' income. So it's definitely something that you should pay attention to. Now, I mentioned, generally speaking, it's a percentage, and that
percentage, generally speaking, is gonna get larger and
larger the more that you earn. And that's a important point, that it's not just a flat percentage, which you still would
pay more if you make more but the actual percentage goes up. Now I go into details in other videos. Another misconception is
that as you go into brackets, the higher and higher tax brackets as you make more and more, and as that percentage for
those incremental brackets go higher and higher that you pay that percentage
on all of your income. That's not the case. You just pay that higher percentage on the incremental income
between that threshold and the next threshold, and then the threshold above that, you pay another higher percentage. I know that can be a little confusing. We have some other
videos that break it down a little bit more, in a little bit more detail. But the important thing to
realize is as you make money, you are going to, depending if you, especially if you reach
some minimum thresholds, you are going to spend a significant amount of money on taxes. The average American household
spends $10,000 on taxes and if you make more than average, it can be substantially more than that. So this is just the intro primer. I encourage you to watch the other videos that teach you how to break
down taxes a little bit. But it's very important to think about.