Death and...
Death and taxes - the two things you can be sure of. Taxes are funny because they sort of creep up on most people. When you're young, you never really think about taxes. And even when you get that high school job, taxes don't really matter. First of all, you are still a dependent for one/both of your parents when they file. Second of all, you don't make much money. But I'm here to tell you some things about taxes to enlighten, prepare, surprise, or bore you, preferably the first few outcomes.
Disclaimer
So, this is going to center around the United States because that's where I have spent all my working years. That said, most other countries are similar in this regard and for the most part, the things that change are the numbers, but most of the concepts remain identical. Also worth noting, I'm not a CPA or a lawyer, so you should go check this information with some authoritative source. Consider this my meandering thoughts and opinions, at best, which could be right, and I think they are right, but in fact are trash.
In The United States
Everyone in the United States is subject to taxation. The real question is how much you owe. Sometimes, that number can be 0. Other times, it can even be negative. But for the most part, if you have a job, it will probably be slightly more than 0. The type of tax all Americans pay is federal tax. The tax system in the US is progressive (on the surface) which means that the more money you make, the greater the taxed percentage of that money. The other important components to taxation in the US are deductions and credits. Deductions are things that the government says "hey, I won't take taxes from you if you use the money for these things." The government also has what is known as a "standard deduction" which is an amount, set every year, that is basically a minimum deduction everyone can take no matter what. If you don't have any itemized deductions, or they total less than the standard, you take the standard deduction. Credits are straight reductions of tax such as the child tax credit or the earned income tax credit (those are not the same thing) that reduce the amount of tax you owe. Remember, the goal is to pay as little tax as possible.
There are also three major overarching components to taxation in America - they are marriage, children, and the alternative minimum tax, which I will save for later. These things can radically change the amount of taxes you owe. Instead of granular dollar-level taxation, America uses tax brackets which are ranges of taxable income, and assigns a percentage for income in that bracket to be taxed. Each year, they adjust the brackets to account for inflation (or deflation) and Congress decides what the tax percentages are for each bracket. Let's take a look at a few examples. I'll use the 2023 tax year (taxes due April 2023) brackets for these examples, but you should able to easily plug in any year's numbers, past or future and figure things out.
Say you are single with no kids (remember, those two things have to be declared to figure out which brackets to use), living in a state with no tax, and you're not subject to AMT and made a gross income of $41,750, all W2 salary, no 1099 or investment income. The first step is to figure out your taxable income. We will use the simple example that you have no itemizable deductions or, you do, but they are less than the standard deduction (for example, you might have given $1,000 to Charity, or put $5,000 in an IRA, this is only $6,000) of $12,950. So, we subtract $12,950 from $41,750 and we are left with $28,800. Then we look at the brackets - it says that the first $10,275 is taxed at 10%, for a total of $1,027.50. The next $31,500 of income is taxed at 12%, but we only have $28,800 more ($41,750 minus the $10,275 we already accounted for). So 12% of that is $3,456, and all together, added to the $1,027.50, we arrive at $4,483.50, which is the total taxes we owe the federal government for the money we made in 2022. I chose that income to ensure that the Earned Income Tax Credit is not a factor, if you're curious. Note that the overall federal tax rate here was 10.7% ($4,483.50 / $41,750).
Here's another example - you are married with a kid between 6 and 17 living in a state with no tax. You each made $50,000, all W2 salary, no investment income, no AMT. Now, when you're married, you can file one return together or file two returns separately, so we'll try it both ways to see what's better. Let's look at a single return first. The total income is $100,000. You take the standard deduction (which is $25,900 for a married couple filing jointly) so you're left with $74,100. Now we tax! It's 10% up to $20,550 now, so $2,055. Then 12% for the next $63,000, but we only have $53,550, so another $6,426. All togther, that's $8,481. You don't qualify for the EITC (income too high), but you do qualify for the Child Tax Credit, so you'll get $2,000 back for a final total of $6,481. Your effective tax rate is 6.5%. There's also the Child and Dependent Care Tax Credit, but let's imagine you did not incur any qualifying costs in this area to keep the math reasonable. Doing the math quickly for filing separately, back to the $12,950 deduction for each, and you split the tax credit, so $50,000 in income results in $37,050 in taxable income, and the lower brackets are the same as single, so $1,027.50 plus $3,213 (12% of $37,050 - $10,275, or $26,775). So $4,240.50, but you get $1,000 off each, so $3,240.50 each. Combined, you paid $6,480.50, or basically the same as filing jointly. When does it matter? When your incomes are very different. Say one of you makes 10 times what the other one makes - filing jointly is a great idea in this case, saving you about 3% of your gross. The most common reason why filing separately will be better is for medical expenses (since you can deduct all medical expenses over 7.5% of taxable income, but if you combined your income, you'd have to double your medical expenses).
AMT - this one is actually so complicated, I'll probably write a separate post about this and link it here when it's done. Compass and Peloton gave me an opportunity to learn quite a bit about this.
New York...State
Some states do not charge state taxes. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no income tax (there are a few details, but this is mostly true). If you want to save on your taxes, just live in one of those states. I live in New York City in New York State, and so I am subject to New York State tax. Similar to federal taxes, there are brackets and percentages on each. It starts at 4% and goes up to just about 11%, but the vast majority (95%+) pay an effective rate under 6.25%. You also get to deduct your state taxes on your federal return, up to $10,000 ($5,000 if married filing separately). This means that if you make up to $160,000 (either single or jointly), you would be able to take a federal deduction for all of your state taxes (a deduction is not the same as a credit, so you are still paying more taxes than if you lived in a tax-free state).
New York...City
As if it wasn't enough to pay federal and state taxes, I live in New York City, so I also pay city tax. It's $3,264 plus 3.876% of all income over $90,000 for married filing jointly. Many people avoid this by commuting to work from Long Island or New Jersey or even Connecticut. It is all a matter of risk and math, but I chose to stay in NYC because property taxes in those places are very expensive, and even though we enjoy a partial remote life since the pandemic, it won't always be that way, and commuting takes a huge chunk of of the day. The Long Island Railroad only runs every 30-60 minutes on most lines and monthly passes are an additional $300-$500. Add that to the $5,000-$10,000 increase in property and other taxes, plus the cost of vehicle ownership, which would be a necessity instead of a luxury, and Long Island doesn't really cost much less, unless you make well over $500,000.