The U.S. uses a progressive federal income tax with seven brackets. Income is taxed in slices — not all at one rate — and credits and deductions reduce the amount owed.

Federal vs state taxes

Federal taxes are paid to the IRS and apply nationally. State income taxes vary: nine states have none, while others use flat or graduated rates on top of federal tax.

Capital gains taxation

Profits on investments held over a year are taxed at favorable long-term rates of 0%, 15%, or 20%. Short-term gains are taxed as ordinary income.

Self-employment basics

If you earn $400+ from freelance or 1099 work, you owe 15.3% in self-employment tax for Social Security and Medicare, on top of regular income tax.

Tax refund fundamentals

A refund happens when your withholding and credits exceed your tax liability. It's not free money — it's an overpayment the IRS returns interest-free.

Paycheck deductions explained

Your paycheck is reduced by federal withholding, Social Security (6.2%), Medicare (1.45%), state withholding, and any pre-tax benefits like 401(k) or health insurance.

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