Income taxes are imposed by the federal government, the states and sometimes local governments. They are withheld from every weekly paycheck and sent to the treasury (of the nation, the state, the city) by the employer. Income tax is the federal government’s most important source of funds. It pays for the entire government administration and the military, and it funds aid to people in need and grants to state governments.
Corporations and small and large businesses, just like individual citizens, must pay tax on their income. Capital gains tax is due on profits realized from the sale of capital assets, such as stocks, bonds or mutual funds. The payroll tax for Social Security (FICA) is also withheld from paychecks at work. The employee pays 7.65% of gross pay in tax (the part earmarked for Social Security – up to an earnings limit set each year), and the employer pays the same amount. In this way, 15.3% of annual pay is collected in the Social Security and Medicare accounts, so that after reaching retirement age we can receive a modest but guaranteed retirement benefit. Everyone must take part in this social retirement program, whether they want to or not.
Real estate taxes are the main source of revenue for local governments, i.e., counties and cities. These taxes pay for public schools, the fire department and city sanitation services.
Property taxes are paid by owners of houses, commercial buildings, land, and co-op or condominium apartments. Transaction taxes are imposed when some good is transferred from one person to another. They vary by state and county. The most common is the sales tax (e.g., 8.875% in New York City), as well as the tax on services. Store prices are listed before tax, and the cashier then adds the appropriate tax to the bill. That is why, for example, for an item priced at $99.99 we will have to pay $108.86 in New York.
Besides the sales tax, there is an excise tax, imposed on certain kinds of products in order to encourage desired behavior among the population, e.g., to discourage the purchase of certain goods, such as alcohol, cigarettes and gasoline. Excise tax is also imposed on certain services, e.g., telephone charges or airline tickets. Estate taxes are imposed by the federal government and, in some states (e.g., New York), also by the state government. These are the most important types of taxes in the United States. Federal taxes are enforced by the Internal Revenue Service (IRS), which is the counterpart of Poland’s Krajowa Administracja Skarbowa (KAS, the National Revenue Administration). The agency has special powers granted by Congress and can, without a court judgment, seize unpaid taxes owed to it or freeze a taxpayer’s bank account.
Fighting the IRS is enormously burdensome and unpleasant, and most often ends in defeat. That is why you should be prepared so that, in the event of an audit, you can prove that your tax return is correct.
Elżbieta Baumgartner
Elżbieta Baumgartner is the publisher and author of many self-help books, including “Jak chować pieniądze przed fiskusem” (“How to Hide Money from the Taxman”), “Jak działa giełda” (“How the Stock Market Works”) and “Jak inwestować w fundusze powiernicze” (“How to Invest in Mutual Funds”). 255 Park Lane, Douglaston, NY 11363, tel. 718-224-3492, www.PoradnikSukces.com
Updated October 2026.
