The reason why over half the households in the country pay more in payroll taxes than in income taxes is that income taxes are collected based on income, while payroll taxes are collected based on wealth.
The primary distinction between income and payroll taxes is who pays and what the taxes finance. Employees and businesses pay payroll taxes to finance Social Security, Medicare, and other social insurance programs. Employees pay local income taxes to finance public services such as transportation, education, and defense.
Income taxes fund a wide range of government operations, whereas payroll taxes fund specialized programs. Income taxes are levied on income, whereas payroll taxes are levied on wealth.
Tax brackets indicate the tax rate that will be applied to each component of your income. In 2022, for example, if you are single, the lowest tax rate of 10% is applied to your first $10,275 of income. The next 12% of your income is then taxed, and so on, until you reach the top of your taxable income.
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