What Is Tax Freedom Day?

You Work for Uncle Sam Until April 24

Tax Freedom Day from Uncle Sam
Tax Freedom Day is the first day each year you're no longer working for Uncle Sam. P/Getty Imageshoto: Katrina Charmatz

Definition: Tax Freedom Day® is the first day each year that Americans work for themselves. Until then, they work for Uncle Sam, state, and municipal governments. In 2016, Tax Freedom Day arrives on April 24. The Tax Foundation provides it to give you a way to visualize your tax burden.

Tax Freedom Day® 2016 is the same as 2015. Both are the latest in the past six years.

  • April 24, 2015
  • April 21, 2014
  • April 18, 2013
  • April 17, 2012
  • April 12, 2011  
  • April 9, 2010

Why does Tax Freedom day keep moving out?  More revenue is being collected by the government now that the recession is over. During the recession, Americans paid fewer taxes because fewer people were working. Now that unemployed has returned to normal, tax receipts are higher. That means Tax Freedom Day is later.

Tax Freedom Day was earlier in 2011 because of the Obama tax cuts in 2009 and 2010, which included an extension of the Bush tax rebates. These tax reductions were designed to give you more money to spend, and stimulate economic recovery. Despite these reductions, Americans paid more in taxes than they spent on food, clothing and shelter combined.

It's also six days earlier than it was in 2007. Why does Tax Freedom day keep moving? It's a calculation based on national and state government tax receipts. The more tax revenue, the longer it takes to pay it off.

  We pay less in taxes now than in 2002 when the

Bush tax cuts were passed. In fact, the latest Tax Freedom Day on record occurred on May 1, 2000. This was right before the 2001 recession, and tax rates were higher. On average, families paid 33% of total income in state, local, and Federal taxes. However, lower tax revenue was a large contributor to the U.S. debt.

How Is Tax Freedom Day Calculated?

Tax Freedom Day is calculated by dividing the total taxes (Federal, State) collected by the all the personal income earned in a year. The Tax Foundation uses the historical trend and the most recent economic data to make a projection of the tax burden for each year.

What's your personal Tax Freedom Day? Here's an easy way to calculate it. You'll have all the information you need when you pay your taxes. First, add up your total State and Federal tax obligation. Next, use your adjusted gross income. Divide the taxes into the income to get a percentage.

Now multiply that percentage by 365, the number of days in the year. You will get the number of days it takes to pay off your tax bill. Enter that number into this calculator. That's your personal Tax Freedom Day.

How It Breaks Out

In January, you work to pay off federal income taxes. February goes toward paying Social Security, Medicare, and other payroll taxes, as well as state income taxes. In March, you pay state and local sales and excise taxes, as well as property taxes.

The first 24 days of April, you work to pay corporate income taxes (through higher prices), motor vehicle license taxes, as well as severance and estate taxes.

However, the official Tax Freedom Day doesn't include government spending, only government revenue. That's because the Federal government is running a budget deficit that will be paid by future generations. If Americans were working to pay off all spending this year, Tax Freedom Day would be May 8. (Source: Tax Foundation, Tax Freedom Day. Yahoo Finance, Tax Freedom Day)

Is It Worth It?

Government budget spending is usually such a large number, it is hard to relate to your everyday life. Converting budget spending into days worked makes it more relevant. Now that you know how much of your life is spent paying for government spending, it raises an important question. Do you feel you are getting your money's worth? For more, see  Why Do We Have to Pay Taxes? and How Your Tax Dollars Are Spent.

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