Taxes intro | Taxes and tax forms | Financial Literacy | Khan Academy

So, a lot of folks are familiar with government doing things like building roads and bridges, or providing schooling, or parks, or at the federal level, National programs, or say the military. The natural question is: how does the government pay for all of this?

The simple answer is, it's primarily through taxes. There are other sources of revenue as well, but we're thinking on a local level. Taxes are things like sales tax. You buy something, you pay a little bit extra; that extra percentage does not go to the retailer or whoever's providing the service. It would go to the government.

There are things like property tax, especially at the local level, where if you own property, every year that property generally is assessed for what the value is, and you have to pay a percentage of that value to, traditionally, the local government on an annual basis.

Then, when you go to the state and the federal level, probably the most significant tax—in fact, the most significant tax—is income tax, which is a tax on people's income. Now, income tax you can broadly view as a tax on a percentage of your income, and it can be significant depending on how much money you make.

It's not uncommon for, between state and federal taxes, for people to, and things like Social Security tax, etc., for 20, 30, 40, or more of someone's income to go to these collective income taxes. So it is a significant part of folks' income, so it's definitely something that you should pay attention to.

Now, I mentioned, generally speaking, it's a percentage, and that percentage generally speaking is going to get larger and larger the more that you earn. That's an important point: that it's not just a flat percentage. You still would pay more if you make more, but the actual percentage goes up.

Now, I go into details in other videos. Another misconception is that, as you go into brackets—the higher and higher tax brackets, as you make more and more—and as that percentage for those incremental brackets goes higher and higher, that you pay that percentage on all of your income. That's not the case. You just pay that higher percentage on the incremental income between that threshold and the next threshold.

And then the threshold above that, you pay another higher percentage. I know that can be a little confusing. We have some other videos that break it down a little bit more in a little bit more detail. But the important thing to realize is, as you make money, especially if you reach some minimum thresholds, you're going to spend a significant amount of money on taxes.

The average American household spends ten thousand dollars on taxes, and if you make more than average, it can be substantially more than that. So, this is just the intro primer. I encourage you to watch the other videos that teach you how to break down taxes a little bit, but it's very important to think about.