Pay off your tax bill - in 113 days
April 23 is 'Tax Freedom Day' - when the national tax burden is paid off for the year.
NEW YORK (CNNMoney.com) -- Stop working for the government and start working for yourself on April 23.
According to an estimate released Wednesday from the Tax Foundation, it will take 113 days to pay off the nation's total expected taxes for the year.
The 114th day, or April 23, 2008, dubbed "Tax Freedom Day," is when Americans can consider their paychecks entirely theirs to keep for the rest of the year - theoretically at least.
Using the latest government data, the Tax Foundation divides total tax collections for the nation by total income. The result shows that Americans pay about 30.8% of their income toward taxes. And the 113 days from January 1 to April 23 represent about 30.8% of the year.
Thanks to this year's upcoming stimulus rebates and slowed economic growth, the national tax burden will be paid off three days earlier than last year, said the Tax Foundation, a taxpayer advocacy group.
"Tax freedom day" is purely theoretical - it assumes Americans have been working seven days a week since January 1 and don't spend any of the money they make.
While "Tax Freedom Day" should not be taken literally, it does help illustrate how much the public pays for government each year.
Of the five major types of taxes, the Tax Foundation estimated it will take:
- 42 days of work to pay off federal, state and local income taxes
- 28 days to pay off payroll taxes (for Social Security and Medicare)
- 16 days to pay off sales and excise taxes
- 13 days to pay off corporate income taxes (Assuming that a tax on a business is passed on to its customers, employees and shareholders in terms of higher prices, lower paychecks and less shareholder value.)
- 12 days to pay off property taxes
Tax Freedom Day also shows the proportion of income Americans pay toward their tax bills relative to other consumer goods. The Tax Foundation said that Americans spend more on taxes than they do on food, clothing and housing combined. For example, by the same measurement used to calculate "Tax Freedom Day," the organization said it would take Americans:
- 35 days of work to pay for food
- 13 days to pay for clothing
- 60 days to pay for housing
- 50 days to pay for health and medical care
- 29 days to pay for transportation
- 21 days to pay for recreation
Citizens in some states pay less than others, which means "Tax Freedom Day" may arrive earlier or later depending on where you live.
For example, residents of Mississippi, a low-income state, finish paying off taxes by April 7. Conversely, citizens of Connecticut, New Jersey and New York, higher-income states with large metropolitan areas, don't pay off their taxes until May, due to the progressive Federal income tax.
Tax rates are scheduled to rise in 2011, and those higher-income states that are already paying between 25% and 35% of their income could be pinched the most, the Tax Foundation said.
The exception to the rule is Alaska, which is taxed higher than average on the federal level, but much lower on the state level. That state pays off taxes by March 29, more than a week before any other state.