Tax Freedom Day: When It Is And How It Works

Tax Freedom Day. Sounds like you should not be paying taxes, doesn’t it?

On the contrary, Tax Freedom Day represents how many days the average American needs to work in order to pay their taxes.

Here are 2 examples:

In 2007, Tax Freedom Day fell on April 30, which means Americans on average worked for 120 days in order to pay their taxes.

In 2008, Tax Freedom Day was calculated as April 23, which means that it took Americans 113 days of work to pay their tax obligations. Tax Freedom Day is a useful indicator for gauging the impact of taxes each year. The calculation includes all taxes incurred, including income tax, federal tax, state tax, medicare and excise taxes. Examination of the trends related to Tax Freedom Day illustrates how changes in tax law, government monetary policy, and even World War I and II have affected when Tax Freedom Day will fall. Source

 

How It Works…

Using the 2007 Tax Freedom Day stats as an example, of the 120 days needed to earn your tax liability:

• Exactly 79 days of work are needed to pay federal taxes.
• An additional 41 days are needed to pay for state and local taxes.

Therefore, the number of days worked to pay for taxes — compared to other expenses — is fairly high.

Americans worked for 105 days to afford food, clothing, and housing expenses.

Additionally:

• Housing and household operations comprises 62 days of work.
• Health and medical care comprises 52 days.
• Food and travel expenses each comprise 30 days.
• Recreation comprises 22 days.

So the next time you sit and wonder where you’re money has gone, think about these categories.

 

When Is Tax Freedom Day?

America celebrates Tax Freedom Day on the day when the nation as a whole has earned enough money to pay off its total tax bill for the year.

See when Tax Freedom Day is this year.

In reality, Tax Freedom Day differs by state.

The top 3 states with the highest tax burden are:

• Connecticut
• New York
• New Jersey

The top 3 states with the lowest tax burden are:

• Mississippi
• Alabama
• Oklahoma

Therefore, by looking at the states with the highest and lowest tax burdens, it appears citizens living in states in the northeast suffer the largest tax burden, while citizens living in the south have the lowest tax burden.

View Tax Freedom Day by year from 1900 to the present. (More here)

So remember, if your tax freedom day has passed, then all the income you earn from now own can be yours!!