How Much Does the Average American Pay in Taxes?

Matthew Frankel, The Motley Fool

Updated Sun, Apr 22, 2018, 5:48 AM

The 2018 U.S. tax deadline is now behind us, which means that many Americans have now received, or will receive, their tax refunds, while others have now written checks to the IRS for the amounts they owe.

With that in mind, how much does the average American household pay in taxes? And keep in mind that federal income taxes are just one piece of the puzzle. In fact, when you consider state and local taxes, Social Security, and Medicare taxes, the average household's tax bill could be more than you think.

Money scattered on top of IRS tax forms.

Image source: Getty Images.

How much does the average American household earn?

The short answer is that the average American household's income is $74,664, according to the most recent Bureau of Labor Statistics data.

This can be further broken down into income sources, since not all household income is generated in the same way. For example, some households earn most of their income through wages, while others rely on self-employment income from businesses they own. Others are reliant on retirement income sources like Social Security.

Having said that, here's a breakdown of where the average household's income comes from:

Income Source	Household Average	% of total
Wages and Salaries	$57,319	76.8%
Self-Employment Income	$6,270	8.4%
Social Security, Private, and Government Retirement	$8,001	10.7%
Interest, Dividends, Rental Income, and Other Property Income	$1,751	2.3%
Public Assistance, SSI, SNAP	$519	0.7%
Unemployment and Worker's Compensation, Veterans' Benefits	$444	0.6%
Other Income	$360	0.5%
Total	$74,664	100%

Data source: Bureau of Labor Statistics (BLS).

Here's why this matters when it comes to taxation. While taxable wage income is taxed at the marginal tax rates, or tax brackets, other types of income listed here are taxed differently, or not at all. For example, self-employment income is subject to self-employment tax to contribute to the Social Security and Medicare programs. And Social Security income isn't taxed for lower-income beneficiaries, but is taxable for retirees with significant sources of additional income.

The average American's taxes

With that in mind, the average American pays $10,489 in "personal taxes," representing 14% of the average household's total income. This includes federal and state income taxes, as well as other taxes such as personal property taxes, vehicle taxes, and certain other small taxes.

$8,367 of this amount is federal income taxes, $2,046 is state and local taxes, and $75 is other small taxes.

Notably, there are two types of taxes that are not included in this figure -- sales taxes, which vary significantly by location, and payroll taxes for Social Security and Medicare.

Social Security's income from payroll taxes, as well as taxes on Social Security benefits, came to $710.4 billion in 2016. Since half of Social Security taxes are paid by employees, and the other half by employers, this translates to an average of $2,742 for each of the 129.55 million U.S. households.

For Medicare, the total payroll tax collected in 2016 (the most recent year with complete data) divided by the number of American households shows an average Medicare tax of $979 per household. This is consistent with a 2017 Medicare tax estimate I calculated of about $769 per worker, since the BLS approximates there are 1.3 workers per household.

Sales tax is tougher to estimate, and since it varies so widely based on consumption and location, the average isn't terribly meaningful. For example, the average Delaware resident pays $0 in state sales taxes. Even within the same income level and state, there can be a big discrepancy. If two residents of a state with a 7% sales tax both earn $100,000, but one spends $30,000 while the other spends $60,000 on taxable purchases, the second person will have paid double the sales tax.

The bottom line is that excluding sales tax, the average American household paid $14,210 in various taxes in 2016, the most recent year for which finalized data is available. This translates to an effective tax rate of about 24% for the average household.

How could this change in 2018 and beyond?

Although this was based in 2016 data, there weren't many significant tax changes for 2017 and wage growth was about 2.5% over 2017, so it's reasonable to expect 2017's average taxes to increase slightly.

In 2018 and beyond, however, it could be another story altogether.

Specifically, the Tax Cuts and Jobs Act is expected to lower taxes on the majority of American households thanks to lower marginal tax rates, a higher Child Tax Credit, and several other changes. While it won't lower taxes for all households, and estimates of the actual tax savings for the average American vary (here are my estimates), it's fair to assume that the $8,367 the average household pays in federal income taxes will fall significantly once we have 2018 tax year data.

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