How Our Tax System Works
On March 11, 2019, President Donald Trump released his budget request for fiscal year 2020. Under his proposal, the federal budget would be a record $4.746 trillion. The U.S. government estimates it will receive $3.645 trillion in revenue. Most of these taxes are paid by you, either through income or payroll taxes. It's estimated that each taxpayer works until late April each year to pay for all federal revenue collected. This is called "Tax Freedom Day."
Tax Freedom Day® is the first day each year that Americans work for themselves. In 2019 it arrived on April 16th. Every dollar earned before that pays for federal, state, and municipal government services. It's a way to visualize your tax burden. Tax Freedom Day is calculated by using the total amount of taxes paid the previous year. It considers historical trends and the most recent economic data. It then makes a projection of the tax burden for the upcoming year. It usually publishes that forecast in early April of each year.
For 2019, the Tax Foundation projected $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes. It takes this total of $5.2 trillion and divides it by the total personal income earned by Americans each year. The ratio is 29%. That means that on average, Americans work almost third of their lives just to pay taxes. For the final step, the Foundation multiplies that ratio by 365. That's 106 days, which fell on April 16, 2018.
Statistics
FILED TAX RETURNS 2019
101.6 million tax returns out of the 141 million that were filed in 2019 qualified for a refund.
$102million
TAX REFUND PERCENTAGE 2019
According to IRS research, 72% or returns that were submitted in 2019 received a refund.
72%
Refund Percentage 2019
AVERAGE DIRECT DEPOSIT 2019
The average tax refund direct deposit for 2019 was $2,868, which is 2.5% below the 2018 direct deposit average of $2,940.
3%
Refund Average 2018
TAX REFUND ISSUED 2019
During the 2019 fiscal year, the federal government paid $277 billion in refunds to taxpayers, compared to the $285 billion paid in 2018.
$277billion
One major purpose of income taxes in the U.S. is to ensure a redistribution of wealth. As such, federal income taxes, and most state income taxes, are progressive tax systems. This means that those with higher incomes pay more and thus carry a larger share of the tax burden of society. However, there is no consensus nationwide on the distribution of the tax burden and therefore levels vary from state to state. Of the taxpayers who participated in the 2018 Comprehensive Taxpayer Attitude Survey (CTAS), 85 percent said it is not at all acceptable to cheat on their income taxes, and nearly all (95 percent) believe it is a civic duty to pay their fair share of taxes.
According to a recent survey conducted by the National Retail Federation, 50 percent of Americans who expect a refund this year plan to save at least some of it. Paying down debt or covering everyday expenses are also popular ways to use tax refunds, while few people plan to use the new funds to indulge on luxuries such as vacations or splurge purchases.
Tax Documents Checklist
Employed Documents
1. PERSONAL INFORMATION
- Picture ID
- Birthdate for all persons listed on the tax return
- Social Security card or Individual Tax Identification Number (ITIN) card or letter for all persons listed on the tax return
- Routing and account numbers for your savings account, checking account, and/or prepaid card
- W-2s for each job
- 1099 forms for retirement, Social Security, unemployment, interest, dividends, stock sales, and miscellaneous income
- Year-end amounts for MFIP, SSI, MSA, GA, veterans benefits, workers’ compensation
- Record of educational expenses you paid for your children in grades K-12
- Tuition expenses paid for you or your child to attend a college or university (Form 1098-T)
- Student loan interest statement (Form 1098-E)
- Child care expenses: Provider name, address, and tax ID or Social Security number
- Homeowners: Mortgage interest and real estate taxes paid in 2019 and 2020 Property Tax statement mailed by the county in March
- Renters: Certificate of Rent Paid (CRP)
- Mobile home owners: All of the above documents
- Previous year’s tax return
- Verification of health insurance if purchased through MNsure (Form 1095-A)
- Record of charitable donations
Self-Employed Documents
1. PERSONAL INFORMATION
- Picture ID
- Birthdate for all persons listed on the tax return
- Social Security card or Individual Tax Identification Number (ITIN) card or letter for all persons listed on the tax return
- Routing and account numbers for your savings account, checking account, and/or prepaid card
- W-2s for each job
- 1099 forms for retirement, Social Security, unemployment, interest, dividends, stock sales, and miscellaneous income
- Year-end amounts for MFIP, SSI, MSA, GA, veterans benefits, workers’ compensation
- Business expense records (receipts, credit card statements, records of checks you’ve written, etc.)
- Quarterly estimated tax payment receipts (receipts of installments to your tax bill paid to the IRS during the year)
- Detailed and itemized mileage records
- Home office expenses (a record of your home-related expenses, like utilities and mortgage or rent)
- Record of educational expenses you paid for your children in grades K-12
- Tuition expenses paid for you or your child to attend a college or university (Form 1098-T)
- Student loan interest statement (Form 1098-E)
- Child care expenses: Provider name, address, and tax ID or Social Security number
- Homeowners: Mortgage interest and real estate taxes paid in 2019 and 2020 Property Tax statement mailed by the county in March
- Renters: Certificate of Rent Paid (CRP)
- Mobile home owners: All of the above documents
- Previous year’s tax return
- Verification of health insurance if purchased through MNsure (Form 1095-A)
- Record of charitable donations
Full Document Checklist
1. Personal Info
- Driver's License or Passport
- Social Security Number – for you, your spouse and dependents
- Date of Birth – for you, your spouse, and dependents
- Copy of last year’s tax return
- Your Electronic Filing PIN used on last year’s tax return
- Bank account and routing number to direct deposit your refund
- Wages, Salary, Tips (W-2 Forms)
- Unemployment (1099-G)
- Investment Income
- Interest – savings account, money market account, mutual funds, etc (1099-INT)
- Dividends – stocks or mutual funds (1099-DIV)
- Capital Gains (Loss) – sale of stocks, bonds, mutual funds, real estate, collectibles, etc (1099-B or broker statements)
- Capital Loss Carryover – (last year’s Schedule D – Capital Gains and Losses)
- Undistributed Capital Gains – RIC’s or REITs (Form 2439)
- Social Security benefits (SSC-1099)
- IRA, 401k, 403b, or pension distribution (1099-R)
- 2018 Roth IRA Conversion
- Rental income/expense statement
- Health Savings Accounts (1099-SA)
- Gambling winnings
- Alimony income
- Jury Duty
- Business income/sales
- Farm income
- Partnerships, S Corps, Estates and Trusts (K-1)
- State and local tax refund (1099-G)
- Mortgage Interest and points you paid (Form 1098)
- Property Taxes (real estate tax bill)
- Mortgage Insurance (Form 1098)
- Moving Expenses
- Energy-Efficient Improvements
- Cash Donations (receipt from the charity)
- Item Donations (receipt from the charity and/or Form 8283)
- Student Loan Interest Paid (deduct up to $2,500)
- Education Expenses (receipts for tuition, books, and fees)
- Child and Dependent Care Costs (name, address, tax ID/SSN of care provider and amount paid)
- Adoption Expenses (SSN of child and any legal, medical, and travel expenses)
- Medical and Dental Expenses (receipts for all medical expenses)
- Medical Insurance Premiums
- Health Savings Account Contributions
- Personal Property Tax (includes Vehicle Registration fees)
- Sales Tax (receipt for all big-ticket items like a boat, car, home renovations)
- Estimated Taxes – if you make estimated tax payments (Form 1040-ES)
- Foreign Taxes (statement showing foreign taxes paid)
- Traditional and Roth IRA Contributions (check the traditional IRA and Roth limits)
- 401k, 403b, and Pension Contributions (check the 401k contribution limits)
- Keogh, SEP, Simple 401k self-employment plan contributions
- Investment Expenses includes safe deposit box, investment advisor, custodial fees, and transaction costs
- Job-Related Expenses (travel costs, uniforms, union dues, job hunting costs, education)
- Teacher/Educator Expenses (receipt for all non-reimbursed supplies for the classroom)
- Tax Preparation Fees
- Casualty and Theft (police report, insurance claim, documents showing fair market value of item)
- Alimony Payments
- Legal Fees (legal bills)