When the average American wakes up and heads out to work, he or she is working for all of America by way of taxes. Despite American’s efforts to pay as little tax as is humanly possible, there is a limit to just how much you can reduce your tax liability. According to research conducted on the income of almost 130,000 people, the average American pays around $10,489 each year in taxes.

This includes both federal as well as state income taxes such as vehicle taxes, personal property taxes, and other small taxes. Of this amount, $8,367 is the total amount of federal income tax, $2,046 represents local and state taxes and the last $75 represents the small taxes. This figure leaves out two main taxes; sales tax, and the payroll tax for social security.


This is because the payroll and social security taxes that amounted to almost $710.6 billion in 2016 comprise one half of the amount from employees and the other half by the employers. As such, this translates to approx. $2,742 per individual. Sales tax is harder to estimate because it varies based on the business and consumption per year, and the average amount is not really meaningful. We've looked into the taxes the average American pays and figured out a way to help you estimate how much you pay.

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What Is The Tax Wedge On The Average American Income?

This is a common term that is used by tax professionals and it refers to the difference between how much the average American pays in tax, and the amount he would otherwise take home in total earnings if he did not pay taxes. According to economics, this amount that the average individual would take home if they did not have to share their earnings with the federal government is known as the total cost of labor for his employer if the employer would have paid him instead of remitting to the government.

The Organization for Economic Cooperation and Development (OECD) is the organization responsible for calculating the tax wedges annually for the United States and other developed countries. It is based on the salary of a single person and the tax bracket they fall under. The idea is; if your tax wedge is very high, then, having a job will not hold any meaning to you.


How To Calculate Your Tax Wedge?

The tax wedge is calculated using both FICA tax, income tax, social security tax, and Medicare tax where applicable. The federal tax represents the biggest portion of the burden for most Americans. Both employees, as well as employers, share the Medicare and Social Security tax and both are used to calculate the OECD tax wedge.

The theory is that; even if an employee doesn’t have to pay an out-of-pocket tax for their employer’s share, the money would still be paid to them if their employer did not contribute on their behalf. Social Security takes another 12.4% of the individual’s pay which includes both employer and employee contributions.

The US Tax Wedge

In May of 2019, the Tax Foundation reported that the tax wedge in the US was 29.6%. This is however still less than the OECD average for all other countries which is 36.1%. The US tax wedge went down by 2.2% from the previous year due to the Jobs Act and Tax Cuts.


So What Does This Mean?

A tax wedge of 29.6% works out to around $17,596 of the average earner’s salary, which was cited as $59,485 for single individuals in 2018. The average Joe, therefore, contributed that much to the government as per the OECD calculations.

What Is The Difference Between “Tax Wedge” And “Actual Taxes Paid?”

The one thing you should note is that; the OECD tax wedge only uses income, Medicare and Social Security to calculate the tax wedge. This does not include other important taxes such as sales tax, which individuals pay daily, or property and vehicle taxes.

Now, the OECD is not the only organization calculating the wedge tax, the US Bureau of Labor Statistics (BLS) also came up with some new numbers. According to their analysis, the percentage of taxes that were paid annually be Americans in 2017 was 24%, which is a lower figure compared to what the OECD reported.

This is because their figure showed that families with dependents are eligible to tax breaks that eluded single parents. This is not factored into the OECD statistics. It also doesn’t include the employer’s contribution to Social Security.

What The Average American Pays In Taxes
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What The Average American Pays In Taxes Conclusion

In conclusion, we are going to summarize the statistics that give insight into how much the average American pays in taxes each year. The statistics show that in 2018, the average American, single filer contributed 29.6% of their earnings to taxes by way of Medicare, income and Social Security. The average amount of income tax that all Americans paid in 2016 was 14.20% according to the Tax Foundation’s calculations.

The average American families paid on average 24% of income in 2017 in taxes according to the BLS numbers. Remember that if you are self-employed those numbers don't apply to you as you pay differently and have the opportunity to make deductions. Now, you should have a good idea of how much the average American pays in tax per year. This number will change according to inflation each year. But we can clearly see the average American contributes a lot to keep America functioning.