The United States of America is a federal republic with autonomous state and local governments. Taxes are imposed in the United States at each of these levels. These include taxes on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees.
Personal Income Taxes
Taxes are imposed on net income of individuals and corporations by the federal, most state, and some local governments. South Dakota, however, does not have a personal income tax. Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes. Income subject to tax is determined under tax accounting rules, not financial accounting principles, and includes almost all income from whatever source. Most business expenses reduce taxable income, though limits apply to a few expenses.
Reducing Taxable Income
Individuals are permitted to reduce taxable income by personal allowances and certain non-business expenses, including home mortgage interest, state and local taxes, charitable contributions, and medical and certain other expenses incurred above certain percentages of income. State rules for determining taxable income often differ from federal rules. As of 2005, South Dakota has the lowest per capita total state tax rate in the United States. The state sales tax rate is 4 percent. Various localities have local levies so that in some areas the rate is 6 percent. Ad valorem property taxes are local taxes and are a large source of funding for school systems, counties, municipalities and other local government units.
The United States is one of two countries in the world that taxes its nonresident citizens on worldwide income, in the same manner and rates as residents; the other is Eritrea.
For more info on taxes, visit the IRS website.
Payroll taxes are imposed by the federal and all state governments. These include Social Security and Medicare taxes imposed on both employers and employees, at a combined rate of 15.3% (13.3% for 2011 and 2012). Social Security tax applies only to the first $106,800 of wages in 2009 through 2011. However, benefits are only accrued on the first $106,800 of wages. Employers must withhold income taxes on wages. An unemployment tax and certain other levies apply to employers.
Property taxes are imposed by most local governments and many special purpose authorities based on the fair market value of property. School and other authorities are often separately governed, and impose separate taxes. Property tax is generally imposed only on realty, though some jurisdictions tax some forms of business property. Property tax rules and rates vary widely with annual median rates ranging from 0.2% to 1.9% of a property’s value depending on the state.
Sales taxes are imposed by most states and some localities on the price at retail sale of many goods and some services. Sales tax rates vary widely among jurisdictions, from 0% to 16%, and may vary within a jurisdiction based on the particular goods or services taxed. Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
Taxes on Foreign Individuals
Foreign individuals and corporations not resident in the United States are subject to federal income tax only on income from a U.S. business and certain types of income from U.S. sources. They are subject to a different transfer tax (estate and gift taxes) regime than a U.S. taxpayer. States tax individuals resident outside the state and corporations organized outside the state only on wages or business income within the state. Payers of some types of income to nonresidents must withhold federal or state income tax on the payment. Federal withholding of 30% on such income may be reduced under a tax treaty. Such treaties do not apply to state taxes.
Every state in the United States has its own tax administration, subject to the rules of that state’s law and regulations. These are referred to in most states as the Department of Revenue or Department of Taxation. The powers of the state taxing authorities vary widely. Most enforce all state level taxes but not most local taxes. However, many states have unified state-level sales tax administration, including for local sales taxes.
State tax returns are filed separately with those tax administrations, not with the federal tax administrations. Each state has its own procedural rules, which vary widely.
The Aberdeen Senior Center offers free tax assistance to people earning less than $53,000 per year. You will need an interpreter to go along with you if you are unable to speak English. Appointments are preferred and can me made by stopping at their location- 303 7th Ave. SE, Aberdeen, SD 57401. You can also click here for tax assistance: http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers