The Difference in State, Local, and Federal Taxes

Date Published: August 8, 2020

The federal government established a tax collection agency known as the International Revenue Service or IRS. This body is in charge of collecting all forms of taxes within the country. There are three types of taxes that the IRS collects; they are broken up into federal, state and local taxes. It’s important to know which of these you are required to file due to the difference from state to state. This blog will give you a bit of information on each of the taxes and what it takes to file them.

1. Federal Taxes

Federal taxes are the taxes collected by the federal government. This money is used to finance the services the federal government provides to the general public. This would include construction and maintenance of interstate highways, welfare programs and government agencies. Federal taxes are taxes that are required by everyone in the country to file.

2. State Taxes

On the other hand, state taxes are collected in order to cater to the needs of a particular state. They might help fund services being provided by the federal government as mentioned below but only for that particular state. That means these taxes could be used alongside the federal ones to construct interstate highways of that state but then could be used entirely on their own to help provide hospitals and schools as well.

3. Local Taxes

Local taxes cater for the financial needs of a city or local area. There are certain services which are enjoyed by the city that they must pay for. These local taxes will pay for things such as road repairs, traffic lights, police, fire and etc.

Understanding the Difference

It is important to understand the different taxes when it comes to filing due to the rules that apply for each of the different types. For the most part federal taxes will stay the same from person to person based on income level and are withheld every paycheck. Yet when it comes to state and local taxes this is where they begin to differ from where you live. Each state and local area has different taxes so one could see very different taxes needing to be filed or being withheld from their paycheck. An example of this could be when it comes to state income taxes; Texas does not make its citizens pay a state income tax unlike other states in the United States.



In order to understand more about the filing requirements of the various types of taxes, you can go to the IRS website. Get to know the forms you will need when filing taxes as well as the deadlines for when you are to file. Each state differs and it is important to understand how your state works when it comes to the filing of your taxes. If your still unsure about how to go about your filings contact a professional CPA firm and let them help you understand everything you need to know.