Every year around April 15, you’ll hear adults of all ages groan about “tax day.” That’s because federal and state income tax forms are due around that time. But have you ever wondered why you have to pay taxes?

In the United States, we have governments at the local, state and national (federal) levels. These governments have various parts to them, including legislators (who make laws), executives (who enforce laws), judges and many others. The money these government workers receive to do their jobs comes from taxes.

Taxes take many forms, too. When you work at a job to make money, you pay income taxes. Depending on how much money you make, a certain percentage (part) of the money you make is withheld (kept out of your paycheck and sent to the government).

When you buy things at a store, you also usually pay sales tax, which is a percentage of the cost of the item charged by the store. If you own property, you also pay property taxes on the value of your property.

Paying your taxes is considered a civic duty, although doing so is also a requirement of the law. If you do not pay your taxes, the government agency that oversees taxes — the Internal Revenue Service or IRS — will require you to pay your taxes or else face penalties, such as fines or going to jail.

The money you pay in taxes goes many places. In addition to paying the salaries of government workers, your tax dollars also help to support common resources, such as police and firefighters.

Tax money also helps to ensure the roads you travel on are safe and well-maintained. Taxes are also used to fund many types of government programs that help the poor and less fortunate, as well as many schools!

Each year when “tax day” rolls around, adults of all ages must report their income to the IRS, using special tax forms. There are many, many laws that set forth complicated rules about how much tax is owed and what kinds of special expenses can be used (“written off”) to lower the amount of taxes you need to pay.

For the average worker, tax money has been withheld from paychecks throughout the year. On “tax day,” each worker reports his or her income and expenses to the IRS.

Employers also report to the IRS how much they paid each worker. The IRS compares all these numbers to make sure that each person pays the correct amount of taxes.

If you haven’t had enough tax money withheld from your checks throughout the year to cover the amount of tax you owe, you will have to send more money (“pay in”) to the government. If, however, too much tax money was withheld from your paychecks, you will receive a check (get a “refund”) from the government.

 

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    • Thanks for WONDERing with us, Iver! It’s true, we do have to pay taxes – whether at the store, when we purchase things, or at work, when we get paid. It may not be our favorite thing to spend money on, but our dollars go towards helping pay for things we use everyday, like streets, public school, police and water. Paying taxes is pretty important, don’t you think? Have a WONDERful day, Iver! :) :)

    • That’s a great question, SuperSmash22! Each time an employee gets paid, his or her employer electronically sends a portion of that money to a special accounting office located at their local, state and federal governments. Employers use banks to send money, just like individual people do. :)

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Have you ever wondered…

  • Why do you have to pay taxes?
  • What is the IRS?
  • How is tax money used by the government?

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Try It Out

Although you won’t have to worry about paying income taxes until you have a job, there is one tax you’re probably already familiar with: sales tax. Sales tax is the tax added to many things you buy at the store.

The next time you head to the store, bring a calculator with you. Do you know your local tax rate? If not, just ask a clerk at the store.

As you travel the aisles of the store, look at the prices of products. Use the calculator to figure out how much each product would be if you purchased it.

For example, if you see a toy truck for $1 and your local tax rate is 6 percent, you would multiply $1.00 by 1.06 to get a final price of $1.06.

While $1.06 might not seem much more than $1.00, sales tax can add up when you buy multiple items or expensive things. What would a new car cost if its price is $20,000 and your local tax rate is 5 percent? That’s right! Sales tax would add another $1,000 to the cost of the car!

If you have some things you actually need to buy, go ahead and finish your shopping. When you’re finished, take a look at the receipt.

Check to see how much sales tax you paid in total on your purchases. Were there any things you bought that weren’t taxed? In some places, necessary items, such as food, are not taxed.

It’s important to remember sales tax when you start saving up for an important purchase you want to make. For example, if you’re saving money to buy a new pair of soccer cleats that cost $50, you’ll want to be sure you save a little more than $50.

Make sure you calculate how much the cleats will cost — after tax — so you’ll be sure you have enough money when it’s time to head to the store!

 

Still Wondering

Visit EconEdLink’s Tic Tac Taxes! lesson to learn how to identify various taxes and the services they help governments provide.

 

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