The U.S. government gets its power to collect taxes directly from the Constitution. This same document that built the country also gave Congress the power to fund it. Curious how taxes became such a big part of the system?
Let’s break it down.
The Constitutional Authority
As we have seen above, the authority to tax comes directly from the US Constitution. Specifically, Article I, Section 8 grants Congress the power to collect taxes, duties, imposts, and excises.
It states that taxes must be uniform across the country, ensuring fairness in the system.
But what about income taxes?
That power wasn’t originally in the Constitution. It became official with the 16th Amendment, ratified in 1913, which gave Congress the power to levy taxes on income without distributing it among the states.
Before that, income taxes existed temporarily during the Civil War but were later struck down by the Supreme Court. The 16th Amendment made it permanent.
Types of Taxes the Government Can Collect
Let’s talk about what the government can actually tax.
1. Federal Income Tax
This one’s unavoidable if you earn money. The government takes a portion of what you make and uses it to fund everything from highways to national defence.
The U.S. has a progressive tax system, meaning the more you earn, the higher the percentage you pay.
For example, in 2024, the federal income tax brackets start at 10% for lower-income earners and go up to 37% for those making over $578,125 (or $693,750 for married couples).
That means if you earn $50,000 a year, you don’t pay 22% on the whole amount. Just the portion that falls in that bracket. It’s tiered, so part of your income is taxed at 10%, then 12%, and so on.
2. Payroll Taxes (Social Security, Medicare)
Even if you get a tax refund, you still pay payroll taxes. These fund Social Security and Medicare. Unlike income tax, which depends on your total earnings, payroll taxes are a flat rate:
⦿ Social Security tax: 6.2% (matched by your employer) on wages up to $168,600 in 2024
⦿ Medicare tax: 1.45% (also matched by your employer) with no income cap, plus an extra 0.9% for those earning over $200,000
Let’s say you earn $60,000 a year:
⦿ Social Security tax: $60,000 × 6.2% = $3,720 (your employer pays the same)
⦿ Medicare tax: $60,000 × 1.45% = $870 (again, your employer matches it)
Self-employed? You pay both halves, but you can deduct half of it on your taxes.
3. Corporate Taxes
Businesses don’t escape taxes either.
Corporate income tax is 21% on profits, but companies can use deductions and credits to lower what they owe. That’s why some huge corporations end up paying little to no federal tax.
They find legal ways to reduce their taxable income.
For example, if a company makes $5 million in profit, they technically owe $1.05 million (21%). But after deductions (like business expenses or research credits), they could pay far less.
4. Excise and Estate Taxes
Then there are the special taxes—excise and estate taxes.
⦿ Excise taxes are built into the price of things like gas, alcohol, and tobacco. Buy a pack of cigarettes? A portion of that price goes straight to the government.
⦿ Estate taxes apply when someone passes away and leaves behind a big inheritance. In 2024, the tax kicks in if the estate is worth more than $13.61 million.
So, whether it’s your paycheck, business profits, or even what you inherit, the government has a way to collect its share.
How Tax Collection is Enforced
The government has systems in place to make sure people and businesses pay what they owe. And when someone doesn’t?
Well, that’s where the IRS steps in. Let’s break it down.
➡ Withholding and Estimated Taxes
For most employees, taxes are automatically deducted from each paycheck before the money even hits their bank account. This is called withholding.
It ensures that taxes are being paid throughout the year, little by little. Employers handle this part, sending those tax dollars straight to the IRS. That way, when tax season rolls around, most employees don’t have to worry about a huge bill.
But what if you’re self-employed or earning money from side gigs, freelancing, or investments?
In that case, no one’s withholding taxes for you, so you’re responsible for paying them yourself. That’s where estimated tax payments come in. The IRS expects you to send in a chunk of what you owe every three months.
If you don’t, you could end up owing a lot more when you file. And on top of that, the IRS might hit you with penalties.
➡ Tax Audits and Notices
If the IRS sees something that doesn’t add up, they’ll send you a notice.
This could be because of missing income, incorrect deductions, or even a simple math error on your return. Sometimes, it’s just a request for clarification.
Other times, it’s the start of an audit.
Now, an audit doesn’t necessarily mean you did something wrong. It just means the IRS wants to take a closer look. Most audits are done by mail, where you send in the documents they ask for. In some cases, they’ll conduct an in-person audit, which can be more serious.
Either way, having proper records can make a huge difference. These are like:
⦿ W-2s
⦿ 1099s
If you can prove your numbers are correct, the audit is usually closed without any issues.
➡ Penalties and Interest
Not paying your taxes on time? The IRS isn’t just going to let it slide. They charge penalties and interest that add up fast.
⦿ Failure-to-file penalty: If you don’t file your return by the deadline, the IRS charges 5% of what you owe per month, up to 25%.
⦿ Failure-to-pay penalty: If you file but don’t pay, the penalty is 0.5% per month, plus interest.
⦿ Interest on unpaid taxes: The IRS charges interest daily on overdue taxes, which makes the total grow quickly.
In short, the longer you wait, the more you owe.
➡ Collections and Liens
If taxes go unpaid for too long, the IRS can take action. First, they’ll send multiple notices, giving you time to pay or set up a payment plan. But if you ignore them? That’s when things get serious.
The IRS can place a lien on your property, which means they have a legal claim over your home, car, or business assets. This can hurt your credit and make it hard to sell anything.
If you still don’t pay, they can garnish your wages, taking a portion of your paycheck before you even see it.
In extreme cases, they can seize assets, including bank accounts.
How to Stay on Top of Your Taxes
Nobody likes tax season sneaking up on them, but staying ahead of it doesn’t have to be stressful. The key? Keeping your documents organized and filing on time.
So, what documents do you need? W-2s for employees, 1099s for freelancers, and pay stubs to verify income.
Missing any of these? PaystubHero helps you with this. We help you generate W-2 and 1099 forms quickly, so you can file on time without the hassle.
Stay organized, avoid penalties, and get your tax documents today with PaystubHero!
FAQs
We’ve covered the key questions about what gives the U.S. government the power to collect taxes.
