Taxes demystified: A breakdown of some of the most common taxes

You’ve probably heard the old adage about death and taxes 1,000 times: “In this world, nothing can be said to be certain, except death and taxes.” We have Ben Franklin to thank for that one (no, not the taxes themselves – the quote).

Yet, how can something that’s so certain still leave many of us so mystified? Not only do most people in the U.S. pay income taxes every single April 15, but homeowners will typically pay property taxes, shoppers may have to pay a sales tax when buying something, workers likely have to pay payroll taxes, and if you lose a loved one, there might be a tax on the estate.

The list of taxes you’ll generally pay throughout your life is long. And while no one is asking you to like it, you do need to understand it to have a better handle on your financial obligations and hopefully not get caught off guard by a surprise tax bill. Here’s a breakdown of some of the taxes you may pay during your lifetime.

U.S. income tax: State vs. federal

If you’ve ever paid U.S. income taxes before, you’ve likely noticed that you generally pay a combination of U.S. federal taxes and state taxes – unless you live in one of the nine states that have no state income tax. Twenty-seven states and the District of Columbia use a graduated-rate income tax system (just like federal taxes) that taxes people based on their earnings, and 14 states assess a flat income tax, applying the same rate to everyone, no matter how much money you make in a year. If you’re considering a move, keep state taxes in mind. Where you live can make a big difference in how much you pay each year.

With federal income taxes, the rate you pay is generally based on your income and filing status. Federal income taxes are also based on a “progressive” system, meaning that as taxable income increases, you generally pay a higher rate of tax. This is achieved through a marginal rates system, which means that one rate applies to the first portion of your tax bill and then the next portion is taxed at a higher rate, and so on. There are currently seven federal income tax brackets that range from 10% to 37% for the 2025 tax year. For example, single filers earning up to $11,925 for the year would be in the 10% bracket. Someone who makes $15,000 would still be in the 10% bracket for the first $11,925, and then they would be in the 12% bracket (i.e., the next highest tax bracket) on their remaining $3,075.

If you work for a company, federal and state taxes are often withheld from your paycheck. In that case, your employer acts as a collecting agent for the Internal Revenue Service (IRS) and sends money to the IRS on your behalf as it’s collected. The amount of income tax withheld per paycheck generally depends in part on the information you provide on your IRS Form W-4, including your filing status and how many people you claim as tax dependents.

If you’re a self-employed individual, you don’t have an employer that withholds income taxes for you. Instead, you will most likely need to pay estimated tax each quarter in addition to filing your annual tax return, which means you generally can’t just wait until the following April to pay all the tax you owe or you may owe penalties and interest. A tax software or your tax professional can help you figure out how much you have to pay in quarterly estimated taxes – generally, the more you pay each quarter, the less you are likely to owe the following April.

Even if you’re not self-employed, the amount of state and federal tax that your employer withholds may not be enough for you to avoid interest and penalties. This can be true if you have an unusual income event during the year, such as the sale of a home or a stock for profit. You may be able to adjust your withholdings to take these circumstances into account, or you may have to pay quarterly estimated taxes. You can work with a tax software or consult a tax professional to help you calculate how much those estimated payments should be.

Payroll and self-employment taxes

If you are not self-employed, payroll taxes (primarily Social Security and Medicare taxes) are typically withheld each pay period by your employer along with income taxes. Those who are self-employed are generally required to pay a self-employment tax in addition to income tax. Self-employment tax consists primarily of the Social Security and Medicare taxes, similar to what would typically be withheld by companies for most employees. Self-employment tax and payroll taxes are generally not dependent on the state you live in since they’re U.S. federal taxes.

Property tax

If you own property, you’re likely familiar with the concept of property taxes – generally, everyone who owns a piece of property in the U.S. (including land and buildings) is responsible for paying tax on that asset every year. In the U.S., property taxes are generally assessed by states and sometimes by counties or other local areas, and they are some of the largest sources of revenue on the state and local level. These taxes may go toward building roads and infrastructure, and funding essential services like schools, police and fire departments. Much like state income taxes, property taxes can vary greatly by geographic area. If you’re shopping for real estate or looking for a place to put down roots (by buying a home, for example), property taxes can (and generally should) be a big consideration.

Sales tax

If you’ve ever made a purchase in a store, then you’re likely familiar with sales tax. Most state and local governments (45 states, to be exact) tax the retail sales of goods and services. When you’re at the checkout counter, you’ll likely pay a tax as high as 10.116% (in Louisiana) on the purchase price. You can generally expect to pay sales tax on a diverse range of items, from clothing and salon services, to cars and kitchen goods and restaurant meals, for example – although many states do exempt groceries from the list. Sales tax can be another important consideration when you’re looking to put down roots in a new state – paying even a few dollars more on every transaction can really add up over time.

Estate tax

One tax that’s in the news a lot is the U.S. federal estate tax. However, that estate tax only affects a small portion of people each year. In 2023, the most recent year for which we have data, about 3.15 million Americans died. Of those, only 7,100 were worth enough that they had to file a federal estate tax return. And only 4,000 estates actually paid any federal estate tax – that’s 0.0012% of the people who died that year. So the odds that your family will have to deal with the federal estate tax are very small.

The federal estate tax, in 2025, only affects estates worth more than $13.99 million. The estate tax exemption is adjusted for inflation, but many filers do not end up having to pay the estate tax. For example, in 2016, only 5,219 estates (out of 2.74 million Americans who died that year), or nearly 0.002%, paid any estate tax.

State estate and inheritance taxes also exist and vary by state. The highest state estate tax in the United States is in Hawaii and Washington, with 20%, while the highest state inheritance tax is in Kentucky and New Jersey at 16%.

The bottom line

Navigating taxes and their potential implications is complicated for most people, so make sure you speak to a financial planner and/or a tax advisor to help you understand your personal situation. This primer is a general overview, and seeing as individual circumstances will likely vary, it’s important to consult a tax professional with your questions.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

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