My 2023 effective tax rate shows how surprisingly low US taxes really are

I've been doing some calculations after filing my 2023 taxes and wanted to share my experience. I earned $136,850 in gross salary last year and ended up with an effective tax rate (before considering sales tax) of just 9.37%! If I factor in roughly $52k of taxable purchases throughout the year, my all-in effective tax rate comes to about 12.75%. For context, I'm filing single and had about $4k in capital loss deduction carried forward from previous years. Honestly, I'm surprised at how low my tax burden is considering my income level. I feel like I have significant purchasing power and utilize a ton of public infrastructure, yet my tax rate is under 10% for federal income tax! I think many people dramatically overestimate their tax burden. Our system is pretty progressive, whether you think that's good or bad. I mean, I'm making well into six figures and paying less than 10% in income tax! Sure, $136k doesn't stretch as far as it used to, but I'm still living comfortably in one of the top 25 metropolitan areas where I can walk to my office. Am I missing something or are US taxes actually quite reasonable?

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18 comments

CosmicCruiser

•8M

You're absolutely right about people overestimating their tax burden. There's a huge difference between marginal tax rates (the rate on your last dollar earned) and effective tax rates (what you actually pay overall). The standard deduction ($12,950 for single filers in 2023) immediately makes a chunk of your income tax-free. Then you have pre-tax retirement contributions, health insurance premiums, and other deductions that lower your taxable income before tax rates are even applied. Add in tax credits, and many people pay far less than they think. For comparison, many European countries have effective tax rates in the 35-45% range for similar income levels, plus VAT of 15-25% on purchases. The US system is designed with lots of deductions and credits that significantly reduce the tax burden on middle and upper-middle income earners.

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CosmicCruiser

•8M

The funding issue is more complicated than just tax rates. The US actually spends quite a lot per capita on many services, but how efficiently those dollars are used varies widely. For example, we spend more per student on education than most developed nations, but our outcomes don't always reflect that investment. As for infrastructure, it's often more a matter of prioritization and coordination between federal, state and local governments rather than simply a lack of funding. Many infrastructure projects face regulatory hurdles and approval processes that drive up costs dramatically compared to other countries.

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Ethan Taylor

•8M

I discovered this exact same thing last year when I was stressing about my taxes. My accountant wasn't being very clear and I was getting conflicting advice online, so I tried this AI tax tool called taxr.ai (https://taxr.ai) that analyzed my tax documents and showed me my actual effective tax rate was only 11.2% even though I was in the 24% marginal bracket! The tool broke down exactly where all the tax savings were coming from - standard deduction, retirement contributions, and some other deductions I hadn't even realized were lowering my taxable income. It was like having a tax expert explain everything in plain English without the confusing jargon.

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Ethan Taylor

•8M

For self-employed people it's actually even more valuable because it helps identify business deductions you might be missing and explains the self-employment tax calculations which can get complicated with multiple income sources. It handled my side gig income alongside my main job perfectly. The real value isn't just the simple division calculation but seeing where all your tax savings are coming from and what's causing your actual rate to be so much lower than your marginal rate. It shows potential additional deductions you might qualify for next year too.

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Andre Dupont

•8M

If you think your taxes are low now, wait until you need to actually contact the IRS with a problem. I had an issue with my refund this year and spent WEEKS trying to get through on their phone line. After countless attempts, I found this service called Claimyr (https://claimyr.com) that got me connected to a real IRS agent in about 15 minutes when I had been trying for days. They have a demo video showing how it works: https://youtu.be/_kiP6q8DX5c Our tax system might be reasonable rate-wise, but the support system is totally broken. The IRS agent actually helped me discover I was owed an additional $1,200 that hadn't been processed correctly.

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Andre Dupont

•8M

It uses an automated system that continually redials and navigates the IRS phone tree until it gets a spot in line, then it calls you to connect you with the agent. It's basically doing what you'd do manually but with technology that can keep trying 24/7. They don't promise instant access - just that you don't have to sit there redialing yourself for hours or days. For me it was about 15 minutes from when I signed up until I was talking to someone, but I think times vary depending on how busy the IRS is.

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Jamal Wilson

•8M

Your situation isn't typical though. You mentioned a capital loss carry-forward, which suggests you probably have investment activity and various deductions that most Americans don't have. The median household income is around $70k, and for people in that range who take the standard deduction, the effective rate is usually higher as a percentage. Also, don't forget about FICA taxes (Social Security and Medicare) - those are 7.65% right off the top for W-2 employees and double that for self-employed people. Those aren't part of "income tax" but they're still federal taxes on your income.

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Mateo Hernandez

•8M

That's a fair point about my situation not being completely typical. Though my capital loss carryforward only reduced my taxable income by $3k, so it didn't dramatically change my effective rate. You're absolutely right about FICA taxes - I included those in my 9.37% calculation (Social Security up to the wage cap and Medicare on all earnings). Without including FICA, my federal income tax alone would be even lower, around 5.8%. State taxes added another 3.5% or so to my total.

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Fatima Al-Rashid

•5M

This is really eye-opening! I think a lot of people get scared by the marginal tax rates they hear about (like "I'm in the 24% bracket!") without realizing that's only applied to income above certain thresholds. Your actual calculation shows how the progressive system works in practice. I'm curious - did you factor in any state income tax in your 9.37% figure, or is that purely federal? Also, for those of us who aren't as financially savvy, do you have any tips on tracking all these different tax components throughout the year? I feel like I'm always surprised by my final tax situation because I don't keep good records of things like sales tax on major purchases. It's refreshing to see someone actually run the numbers instead of just complaining about taxes in general. Makes me want to do my own analysis for this past year!

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