August 3, 2008

Total tax rate for a 'typical' family

I've seen some people overstate their tax bill. People are frequently confused between their top marginal rate and their overall tax burden. If you are in "the 25% tax bracket" that does NOT mean that 25% of your income goes to the IRS. Yet this is a very common misunderstanding. We also pay different kinds of taxes with our money going to federal, state and local governments. Another reason that tax bills might get confused is that sources will state an 'average' figure which is heavily skewed towards larger numbers due to the very high wage earners pulling the average up. A much more appropriate figure if you're looking at an average American would be the median wage and tax values.

So what is the tax burden for a typical family?

I'm going to use a family of 4 with an annual income of $60,000 as representative of a "typical" family. You could do the same exercise with an income of $40k or 70k, but I'm using $60k. The total tax burden will be a combination of your federal tax bill, the social security & Medicare payments, state sales taxes and income taxes, property taxes and any local taxes. The taxes at the federal level are easy to figure and there is lots of data on those. The tax rates at local and state level will vary and its harder to find data for those rates applied to a median or specific income range.

For a family of four with earned income of $60,000 you can expect a federal tax bill of $2,573. The deduction and exemptions are $10,700 and $13,600 so your taxable income is $35,700. The federal tax rate for married filing jointly on that is $4,573. Plus such a family would get the child tax credit for each child for 2 x $1000 totaling $2,000. So the total tax is $2,573.

The combined social security and Medicare tax rate is 7.65%. So for income of $60,000 you'd be giving $4,590 to SS and Medicare.

Finding the state & local tax figure is a bit harder since theres 50 states and countless local governments all with different tax systems. Nationally the median tax rate paid by a family making $60k is around 8-9% or $4,800 to $5,400. However depending on location it can vary a lot from 5% or $3,000 at the low end to 13%, $7,800 for higher tax areas.

So combining the federal tax of $2,573, the Social Security/ Medicare of $4,590 and the local and state taxes of $5,400 you would have a total tax bill of $12,563 or 20.9% of income.

The typical total tax rate for a family of 4 making $60,000 is about 21%

However given the broad range of tax rates for different state and local governments the rate will vary significantly. With a federal bill of $7,193 and state / local rates from 5% to 13% you are looking at a range of $10,193 to $14,993. That equates to a range of 16.9% to 24.9% depending on location.

Sources of information:


  1. You didn't add in consumer sales taxes, fees and registrations (automobile, permits, etc.), and special assessments.

  2. State and local tax rates include the sales taxes and vehicle registrations. I attempted to estimate the average state/local tax burden. The Tax Foundation figured that average state/local tax burden was 9.7% in 2008. But that is the average rate which is not equal to median for a 'typical family'.


  3. There are some other taxes that I did not include. There are federal gasoline taxes and other misc. fees and taxes that I didn't account for. However, as a % of total income those taxes will not change the total too much. For example the federal gas tax of 18¢ per gallon is abut $100 annually for a typical driver.


  4. I understand this was written in 2008, but the state and local tax bucket is a bit small. Propery taxes, taxes on utilities, and general sales tax cannot be covered by $5,400.


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