The third major type of tax is income-based taxes, such as Social Security and FICA (Federal Insurance Contributions Act). FICA is a mandatory insurance program that is administered by the federal government to provide support to your family in the event of death, disability, health problems, or retirement. To pay for Social Security and FICA, both you and your employer pay 7.65 percent of your gross salary into the federal system for a total of 15.3 percent. You and your employer pay 6.2 percent of your gross salary into Social Security, which is capped and adjusted annually for inflation (i.e., income over a certain limit is not taxed). Additionally, both you and your employer pay 1.45 percent for Medicare, a health care insurance program for the elderly and disabled; this program has no annual cap.

You are responsible for only half of these income-based taxes unless you are self-employed, and then you must pay the entire 15.3 percent yourself. In addition to these taxes, there are also state income taxes and local income taxes. Local income taxes are uncommon, but some larger cities, such as New York City, impose such a tax.