Federal and State Tax

Federal Tax Return vs State Tax Return: What’s the Difference?

Growing cigarette tax levels and differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise. As the market share of electric vehicles (EVs) on the road grows, the gas tax’s ability to fund road projects and decrease traffic congestion erodes. Both federal and state real tax revenue per vehicle mile traveled has been on a steady decline for decades, creating a fiscal gap for road expenditures even as the demand for road infrastructure improvements has grown. Knowing the right forms and documents to claim each credit and deduction is daunting. Finding an accountant to manage your bookkeeping and file taxes is a big decision. Plenty of states use federal formulas to create their own credits.

What Is Federal Income Tax?

Federal income taxes are determined by your individual filing status and income level. The federal government collects federal taxes while state taxes are assessed and collected by the individual state governments. Impact on Middle-Income FamiliesFor millions of households in the middle-income range, these changes translate directly into meaningful savings. A higher standard deduction means more income is automatically shielded from taxation.

• Individuals or businesses that have income from international sources may be required to file federal taxes.
• The State of New York collects $10,380 in state and local tax collections per capita.
• These sources of income are exempt from state tax but are subject to federal taxes.
• However, those assumptions reflect states’ responses as a whole and are likely to vary and may not apply in all states.
• Roadways, bridges, fire departments, EMS, state police, schools, state hospitals, public housing, libraries, parks, welfare programs, and entitlements (like Medicare, Vet benefits, and Medicaid) are funded and maintained by taxpayers.
• There’s even an option to pay in cash at a retail partner location.

Changes in jobs or W-4 forms, contract or freelance work, student enrollment status, and filing changes (marriage, divorce, or new dependent) can all change the amount of state tax due at the end of the year. If you found that you received a state refund last year but owe money this year, it may be due to some life changes that may alter your deductions. State taxes can differ significantly—both in amount and in the philosophy behind them.

State and Local Sales Tax Rates, Midyear 2025

Tax deductions are legislative enactments that allow a taxpayer to reduce the taxable income used to calculate their tax liability. Tax deductions don’t directly reduce the amount of tax a taxpayer must pay. The U.S. uses a progressive tax system, meaning taxpayers pay more incremental tax as they earn more income. This system aims to provide inherent tax benefits to lower-income individuals and collect more taxes from higher-income individuals. In essence, federal taxes are levied by the national government, and they’re used to fund a variety of nationwide initiatives such as defense, foreign affairs, social services, and more. Here are the tax brackets we need to consider, as well as the amount of taxes this person would have to pay for each bracket.

State and Federal Taxes

Therefore, the same federal tax rates apply to everyone, no matter their state of residence. However, state taxes vary by state, so a taxpayer’s total tax liability will differ depending on where they live and earn income. Unlike federal income tax, which, again, is paid to the IRS, your state income taxes are paid to the state and go toward funding local services. To pay your state income tax, you’ll need to file a state tax return alongside your federal tax return, both of which can be completed online.

Are Federal and State Income Taxes the Same?

Notably, the OBBBA makes permanent the individual tax changes first put in place by the TCJA, which avoids a tax hike on an estimated 62 percent of tax filers in 2026. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco and domestic research and development (R&D) expensing. At the end of the year, you must file a federal income tax return to ensure you’ve paid an accurate amount of taxes. You’d need to pay a tax bill if your employer didn’t withhold enough federal taxes from your paycheck. If your employer withheld too much tax or you reduced your taxable income by claiming tax deductions or credits, you may get those tax payments back as a tax refund. At first glance, the adjustments to the 2025 federal income tax brackets may seem modest, but their impact can ripple across household budgets, long-term financial planning, and even the broader economy.

This amount (which is reassessed annually) allows a taxpayer to reduce their taxable income by a set amount established by the federal government. In addition to filing and paying state income tax, you also have to file and pay federal taxes. Anyone with a qualifying salary must pay federal income taxes, which the U.S. government uses to fund defense, healthcare, education, infrastructure, and social programs.

• All United States residents must pay federal income taxes unless they fall into an exemption category.
• More Take-Home PayWith income thresholds rising across all brackets, fewer dollars will be taxed at higher rates.
• The Port Authority of New York and New Jersey (PANYNJ) is a joint venture between the states of New York and New Jersey and authorized by the U.S.
• In addition, there are a national marine sanctuary, four national heritage areas, 27 national natural landmarks, 262 national historic landmarks, and 5,379 listings on the National Register of Historic Places.

Alternatively, taxpayers may receive deductions on other types of spending such as educational expenses. Because of the varying tax brackets, a taxpayer will usually have an effective tax rate different from their highest tax bracket. The marginal tax rate is the additional tax paid for every extra dollar of income. For example, a 10% marginal tax rate means that $.10 of every next dollar earned will be taken as tax. Local taxes are collected in various ways, like property taxes, income taxes, or sales taxes on goods and services. Local taxes are taxes imposed on filers by a county, city, or school district.

Federal tax deductions, as defined by the IRS, are consistent for all taxpayers in the U.S., regardless of their state of residence. Common federal deductions include those for mortgage interest, student loan interest, and contributions to qualifying retirement accounts, among others. Not filing and not paying state income tax could result in penalties or fines. Let’s say you have a single 48-year-old taxpayer in Philadelphia, Pennsylvania, with a taxable income of $65,000. However, a $5,000 contribution was made to his 401(k) plan raising the Medicare, Social Security, and state income to $70,000.

Who Has to File and Pay Federal Income Tax?

The IRS collects taxes on the gross annual earnings of United States residents, trusts, corporations, and other legal entities. Earnings are defined as any and all forms of revenue that Federal and State Tax determine a taxpayer’s income. Funds from taxpayers are used to support public services (schools, emergency services, sanitation), improve and maintain infrastructure (roads, bridges, and tunnels), and fund social welfare programs. Some states impose a franchise tax on businesses for the privilege of operating within their borders, which is distinct from income tax and may apply regardless of profitability. A few states also levy an inheritance tax, which is a tax on inherited property received by an individual, differing from the federal estate tax which is on the decedent’s estate.