The income tax is a progressive tax, which means that the tax rates increase as a household’s income increases. Although personal income tax revenues account for more total revenue than the payroll tax, nearly three-quarters of households pay more in payroll taxes than in income taxes. Together, the personal income tax and the payroll tax accounted for about 80% of federal tax revenues in 2014. Payroll taxes have increased steadily over time. The second largest source of federal revenue is the payroll tax (captured in social insurance and retirement receipts), which provides funds for Social Security and Medicare. The personal income tax is the largest single source of federal government revenue, but it still represents less than half of federal tax revenue. When most people think of taxes levied by the federal government, the first tax that comes to mind is the individual income tax that is due every year on April 15 (or the first business day after). Table B-21, )įigure 1 also shows the patterns of taxation for the main categories of taxes levied by the federal government: individual income taxes, corporate income taxes, and social insurance and retirement receipts. (Source: Economic Report of the President, 2015.

Corporate income taxes and social insurance taxes provide smaller shares of revenue.

The primary sources of federal taxes are individual income taxes and the payroll taxes that finance Social Security and Medicare. Federal tax revenues have been about 17–20% of GDP during most periods in recent decades.

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