Income tax is the money we give to the government to fund their various programs. There are three different types of income tax: Federal, State, and City. For this part of the activity, you choose three different locations and estimate how much taxes you will be paying. You will need to determine how much your starting salary will be.

# Federal Income Tax

Federal Income tax is required for every us resident who is employed. The amount you’ll pay is dependent on your income level, the number of people in your household, and other deductions you have. The Federal Income Tax Rate is a variable rate system. An example of how the rate is determined is as follows:

Note, the above graphic is just for understanding the concept and does not represent the actual federal tax rate. As the graph shows, as a person’s income level increases the higher the tax rate. While the more income a person makes, the higher the associated tax rate, the higher tax is only associated with a portion of your income. See the following graph for example:

In the above graph, the person’s income level would be the length of the blue, green and red rectangle, and there are three different tax rates. The amount of taxes that this individual would pay is the length of the blue box multiplied by Tax Rate 1, the length of the green rectangle multiplied by Tax Rate 2, and the length of the red box multiplied by Tax Rate 3.

Since federal income tax is a complex system, the IRS has developed an online calculator to estimate the amount of income tax that will be withheld. That calculator can be found here.

# State Income Tax

Most states also have a state income tax, with only a few not having any. Each state can determine how their tax rate, some have variable tax rates similar to the federal tax rate, while some have a fixed tax rate.

# City Income Tax

Several large cities have their own income tax.

You can use the online calculator here to estimate your state and city income tax.