Here’s What Happens to Your Tax Money Each Year

Ever wonder what Uncle Sam does with all the federal income tax you pay? Well, for the most part, he’s playing Robin Hood. Most of your taxes go back to the American people and the government to provide goods and services. Healthcare, social security and national security are the biggest categories funded by your taxes.

Using data from the Internal Revenue Service (IRS), we’ve broken down the major expenditures by percentage and looked at each category of federal tax spending, as well as how the tax returns are redistributed to lower-income earners.

According to the IRS, $3.5 trillion was collected in federal taxes for the 2019 fiscal year. That number probably feels imaginary, it’s so high it’s hard to comprehend. But the government has no trouble spending it — mostly on the many public services and institutions we have in place. 

Most American federal taxes go to Social Security, Medicare, Medicaid, defense and security, and public services like education and transportation. It’s no surprise that the largest percentage is dedicated to Social Security benefits when nearly 10,000 people turn 65 and qualify every day. 

[ Read: Here’s How 2021 Tax Brackets Work ]

While there is an increasing debate on where and how tax dollars should be spent — especially when it comes to health care and welfare programs — there’s a general bipartisan consensus that earned dollars be invested in education and infrastructure.

What your taxes look like

The U.S. has a progressive federal tax system based on your income. This means that you’ll pay a different percentage of income tax depending on how much you make. For example, for 2019 filing, single individuals who made between $9,701 to $39,475 will pay 12% of their income to federal taxes. While single-filing individuals who earned between $84,201 to $160,725 will owe 24% of their income to federal taxes. 

[ Read: How to Get Help With Your Taxes While Social Distancing ]

In an attempt to reduce income inequality the redistribution of those taxes is staggered, so lower-income earners receive more than they paid (via refundable tax credits, their income increases post-tax return). At the same time, the one-percenters will see an income decrease after taxes. The chart above shows that an upper-middle-class bracket actually sees the largest disparity between what they pay and the return.  

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Image Credit: Katleho Seisa/Getty Images

Danika Miller

Personal Finance Reporter

Danika Miller is a personal finance reporter at The Simple Dollar who specializes in banking, savings, budgeting, home insurance, and auto insurance. Her reporting has also been featured at CreditCards.com, Reviews.com, and elsewhere.

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  • Andrea Perez
    Andrea Perez
    Personal Finance Editor

    Andrea Perez is an editor at The Simple Dollar who leads our news and opinion coverage. She specializes in financial policy, banking, and investing.