Do you know what are the 3 top sources of the tax revenue in the US? Tax money is the foundation of federal, state, and municipal government operations. It provides funding for public initiatives, infrastructure improvements, and critical services.
L&Y Tax Advisor explains what are the 3 top sources of the tax revenue to help you understand how the government makes ends meet. The top three US tax revenue streams are shown below.
Individual Income Taxes
The United States receives most of its tax revenue from individual income taxes. They make up around half of the federal income. Individuals and households pay these taxes according to their earnings. It includes:
- Dividends
- Wages
- Salaries
- Other sources of income
To balance the country’s economic goals, the progressive structure of the US tax system ensures that higher incomes contribute a bigger percentage of their income. Individual income taxes also fund essential programs like Medicare and Social Security.
Get your VAT number USA.
Payroll Taxes
Payroll taxes are the second-largest source of income. They are mostly used to pay for social insurance programs. These taxes are routinely deducted from employees’ paychecks and paid jointly by employers and employees.
Payroll taxes account for a sizable amount of the federal government payments made by most Americans. They are essential to maintaining these crucial programs because of the growing population and the increasing demand for healthcare services.
Get our tax consultancy services.
Corporate Income Taxes
Corporate income taxes are levied on businesses’ profits. Although they make up a lower portion of the total than payroll and individual taxes, they are still necessary.
Corporate tax revenue supports military, infrastructure, and other government programs. Due to shifts in tax laws and the state of the economy, the percentage contribution of corporate taxes has varied throughout time. Nevertheless, they continue to be a vital source of government funding.
Practice financial reporting and analysis for your business.
The Importance of Tax Revenue
The US government’s financial structure is based on:
- Corporate income taxes
- Payroll taxes
- Individual income taxes
Together, they make it possible to provide national defense, healthcare, education, and public goods. Under a well-designed tax system, all economic actors contribute fairly, promoting national stability and prosperity.
The Bottom Line
Learning about what are the 3 top sources of the tax revenue forms the foundation of the country’s economy. These sources guarantee that the government can promote economic stability, maintain infrastructure, and finance necessary initiatives. Every source is mandatory for supporting public services and building a strong economy. They demonstrate the shared accountability of people, workers, and companies in promoting the country’s welfare. You can better grasp the systems that finance necessary services and our shared obligation to meet the country’s requirements.
Read: Is YMCA tax exempt?
