Argus Explains: Paying Your Taxes

Art: Sabrine Uddin

By DALER NAIMOV

Ever get that sinking feeling when you get your paycheck? It looks great at first glance, but then you notice all those… deductions??? What are they? And why does the government hate you so much? It's not always an amazing experience, but understanding taxes is necessary if you want to make sense of that paycheck. However, trying to comprehend the tax system could explode your brain, so let's do what we can here to keep that brain intact.

So, what different kinds of taxes are there? Well, firstly there are federal, state, and local taxes. The “feds” get a cut of your income to fund things like the military, public health, foreign aid, and interest on the national debt. The state gets some money to pay for education and transportation. And finally, the city needs money to keep the five boroughs running. I know the feeling, everyone's got their hand in your wallet! (Some people feel like a lot of this taxation is unnecessary, but that’s up to you to decide.)

Then, there are FICA taxes (the Federal Insurance Contributions Act), which require companies to withhold a percentage of an employee’s wages for Social Security and Medicare. Social Security is used to fund benefits for retirees, veterans, and those with disabilities, while Medicare taxes provide healthcare for older citizens. In theory, you’ll get this money back after you turn 65.

So what total chunk of change is going to Uncle Sam, the state, the city, and FICA? According to the 2025 federal tax brackets provided by the Internal Revenue Service (IRS), if you make $40,000 a year, you could pay about $8,000 in total taxes here in NYC, leaving you with $32,000. That's an average tax rate of about 20%.

However if you make $100,000 a year (this one is going to hurt), expect to pay around $30,000 in total taxes, taking home about $70,000, meaning your average tax rate jumps to 30%.

If you're making “big!!!” bucks at $300,000 a year — wowzers, you could be looking at $110,000 in taxes, leaving you with $190,000. That’s an average tax rate of about 37%.

You might have caught on to the trend: more income = more taxes. Why, you ask? It’s because America operates on a progressive tax system, not a flat tax. This means that more you earn, the higher a percentage you pay back to the government. Imagine it’s a video game; the higher you level up, the tougher the challenges become, only with a major twist: the challenges = dollars, and no one likes losing them. The fundamental idea is that those who can afford to contribute more will be obligated to do so, which means someone making $50,000 a year won’t pay the same tax rate as someone raking in $500,000. The IRS divides your income into sections called tax brackets. Each bracket is taxed at a different rate.

So let’s say you make about $75,000. The first $14,600 is not taxed. You pay 10% to Washington D.C. on the next $11,600 after that, then 12% on the income between $11,601 and $47,150, and finally 22% on the remaining amount. If you’re fortunate enough to clear over $200k, the feds start to take 32 cents out of every extra dollar, and so on. This way, richer people contribute their fair share, or at least that’s the idea.

If you have a job, your employer automatically takes most of these taxes from your paycheck. They take out estimated amounts for federal, state, and city income tax, along with those FICA taxes we talked about earlier. It's like magic, but instead of pulling a rabbit out of a hat, they're pulling money out of your paycheck — so that is the primary answer to “where the heck did my money go?”

Usually in late January, the doors to your wallet open, and it’s time to file a tax return. This is where you report all your income, deductions, and credits. The IRS then figures out if you paid enough taxes throughout the year. If you overpaid, you get a refund, which means the government gives you back your money (after taking it from you). However if you accidentally underpaid, you owe them more!!!

That’s gotta be it, though, right? Not quite.

We also have sales taxes. You’ll feel those when you buy chips for a dollar and end up paying more. This applies to everything you buy in a store. In NYC, the rate at which this amount is calculated is almost 9%, which includes the New York City local sales tax rate of 4.5 percent in addition to the 4 percent from New York State. On top of all of that, there is a tiny Metropolitan Commuter Transportation District surcharge.

And then there’s real estate taxes. If you own a house, you might have to pay about 1% of your home’s value each year in property taxes to help fund your community.

Taxes may not be the most thrilling topic, but understanding them is necessary for being a responsible citizen, and avoiding being arrested. After all, that money goes towards things like schools, roads, and other services that distinguish us from the animals. It's all about contributing to the “greater good.”

So, next time you see those deductions on your paycheck, don't just sigh and move on. Take a moment to appreciate that you're part of something bigger. Plus, who knows? Maybe you'll get a refund that's enough to treat yourself to that new pair of AJ4’s you've been dreaming of.