How Much Does the Average American Pay in Taxes?
In April, many Americans filed their taxes with the US Internal Revenue Service (IRS). Perhaps when you did, you wondered the same thing I did – how much does the average American pay in taxes? Does anyone ever get a tax refund? How do people manage to reduce their tax bill?
My curiosity won out, and I did a bit of research. It turns out, before you can answer the question of the amount the average American pays in taxes, you must define the average American. Statistics uses many terms to describe numeric facts, so know that a difference exists between the terms average, mean, median, and mode.
Understanding the Meaning of Statistical Terms
Here’s a quick, hopefully not too boring primer on basic stats terms. To discuss the tax burden of the typical American, you need to know the meaning of four terms:
Average – To find the average, add together all the results, then divide by the number of results.
Mean – You find the mean the same way as an average, adding together each result, then dividing by the number of results.
Median – The median refers to the middle number in a list of numbers ordered from least to greatest.
Mode – The mode refers to the number that shows up most frequently.
So, with a list of salaries of $25,000, $35,000, $35,000, $55,000, $65,000, $75,000, and 100,000, the average and mean equals $55,714.29, the median equals $55,000, and the mode equals $35,000.
Although math usually relies on the average or mean to describe statistical norms, the mode could also prove helpful, especially when discussing salaries. That’s because the lowest and the highest salaries can easily throw off the average or mean. For instance, if five households on a street earned salaries of $10,000, $35,000, $35,000, $35,000, and $100,000, the average or mean equals $43,000, which no one on that street earns. That’s why, when studying an economic situation, using all three of the statistical terms – mean, median, and mode, provides the fullest picture.
The Typical American Income
The taxes each person pays depend on the income earned by that individual or household. Let’s first consider what describes a typical American household. The average or mean income depends on how the source calculates it.
The U.S. Bureau of Labor Statistics (BLS) collected data on weekly incomes for US workers that included the week’s tips, overtime, and commissions earned. It extrapolated that an individual would earn the same amount each week and multiplied by 52.
The BLS also exempted the self-employed from its statistics, omitting the growing gig economy and its many freelancers. According to the BLS, full-time workers in the US earned $1,041 per week during the second quarter of 2022. Multiplying that pay rate times 52 weeks provides an annual salary of $54,132 a year.
Compare that with the US Census data, which considers every US household and uses an annual amount provided by the householder. In 2021, the real median household income in the US equaled $70,784, which bore a superbly close resemblance to the salary data provided by the 2020 US Census estimated median salary of $71,186.
Statista used the mean US 2020 income of $71,456. The Census information includes all weeks of earnings, which vary, and recognizes all US workers, so it provides a much more realistic picture of US earning power.
Still, that’s not what most people make. That salary would come from the mode. The majority of male individuals in the US earn $50,900, while the majority of female individuals in the US earn $39,700, according to PayScale. That gender inequity gap closes as individuals amass higher education and professional experience.
How This All Affects the Taxes a Person Pays
The IRS doesn’t tax everyone the same. It fairly distributes tax bills according to earnings, placing each household into a tax bracket. Those individuals who earn up to $10,275 annually pay 10 percent of their income in taxes, referred to as the marginal tax rate. Conversely, individuals who earn $539,900 or more annually pay a higher marginal tax rate of 37 percent of their income.
The IRS created seven marginal tax rates using salary ranges developed using statistical analysis. Whether you use mean, median, or mode, most of the US pays either a 12 percent or 22 percent marginal tax rate. Those articles that claim that the IRS takes one-third of an individual’s income used only the three highest tax brackets or marginal tax rates in their writing.
So, Just How Much Does the Average American Pay in Taxes?
I know we’re not an average bunch of people; we Americans did something pretty special when our ancestors created our republic, and every four years, we peacefully change leaders and continue the republic. Let’s talk about real average salaries, though. The average salary for an American in 2021 equaled $70,784. The 2022 numbers won’t hit the Internet until close to the end of 2023, hence organizations like the BLS trying to extrapolate. Since many incomes increased since the pandemic, look for the 2022 average to remain close to the same or rise somewhat.
Using the average or mean income, the amount that the typical American household earns results in them paying a tax rate of 22 percent. That means a household earning an adjusted gross income of $70,784, which falls into the tax bracket of $50,000 to less than $75,000, pays a typical tax bill of $4,688.
I looked at the modes, too. Since most US females earn an adjusted gross income of $39,700, they fall within the tax bracket of $30,000 to under $40,000, which pays a typical tax bill of $2,057. Most US males earn a little more, so they pay higher taxes. The mode of male incomes in the US returns a salary of $50,900, which places them in the $50,000 to under $75,000 tax bracket, which pays a typical tax bill of $4,688 annually.
It really matters how you look at the numbers. Typically, when someone asks for an average, they want a typical number. When considering incomes, what most people earn comes from the mode, not the average or mean, which the lowest and highest incomes throw off. Regarding salaries, gender isn’t the only variable that creates differences in earnings. Age, location, and educational level also influence earnings.
So, when I considered the question, “How much does the average American pay in taxes?”, I quickly realized that you’d first need to define the average American, and we’re not average! Our country began and continues as a melting pot.
Adjusted Gross Income Average Total Income Tax
| $1 < $5,000 | $134 |
| $5000 < $10,000 | $237 |
| $10,000 < $15,000 | $153 |
| $15,000 < $20,000 | $491 |
| $20,000 < $25,000 | $994 |
| $25,000 < $30,000 | $1,369 |
| $30,000 < $40,000 | $2,057 |
| $40,000 < $50,000 | $2,859 |
| $50,000 < $75,000 | $4,688 |
| $75,000 < $100,000 | $7,390 |
| $100,000 < $200,000 | $15,277 |
| $200,000 < $500,000 | $47,559 |
| $500,000 < $1,000,000 | $156,431 |
| $1,000,000 < $1,500,000 | $313,160 |
| $1,500,000 < $2,000,000 | $464,253 |
| $2,000,000 < $5,000,000 | $816,360 |
| $5,000,000 < $10,000,000 | $1,872,196 |
| $10,000,000 or more | $7,386,572 |
The best way to answer this question depends on the querent. An 18-year-old male with a high school diploma needs to know what to expect to earn compared to others in his own age group and education level. A 54-year-old woman with a master’s degree needs to know what to expect to earn compared to individuals in the same age group and education level.
Saving Money on Your Taxes
If you’ve set a goal of earning more money and paying less taxes, bone up on the many tax deductions and tax credits available to you from the IRS by reading the Taxry blog. For example, if you’re one of the many self-employed individuals in the US, apply for the healthcare tax credit. The IRS lets individuals apply this credit throughout the year for their health insurance obtained through the Healthcare Marketplace or apply it on their tax return to lower their taxes due. Taken throughout the year, the tax credit can pay for an individual’s health insurance completely.
Compare Tax Offers.
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Self-employed individuals pay their income taxes and their Social Security taxes. When a person works for a company that they don’t own, their employer pays the payroll taxes, as the IRS refers to Social Security and other payments. Self-employed individuals can use the tools on Budgetry to create a workable monthly budget that helps them save their estimated taxes due, to avoid surprises at the end of the tax year.